Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm B produces a monitor that David buys, then the market outcome illustrates which of the following principles? i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay.
Ii) Free markets allocate the demand for goods to the sellers who can produce them at the least cost.
A) i) only
B) ii) only
C) both i) and ii)
D) neither i) nor ii)

Question

Quizplus · Accepted Answer

In this scenario, the free market is allocating the supply of monitors to the buyer who values it the most, which is David. David is willing to pay a higher price for the monitor, and therefore, Firm B is able to sell the monitor to him. This situation illustrates the principle that free markets allocate the supply of goods to buyers who value them most highly, as measured by their willingness to pay. The fact that Firm A can produce the monitor at a lower cost is not relevant in this case, as the market outcome is determined by the buyers' willingness to pay. Therefore, ii) is not applicable in this scenario.

Suppose That Firms a and B Each Produce High-Resolution Computer