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

If David is willing to pay more than Cassie, he values the monitor more highly than Cassie. If Firm B produces a monitor that David buys, then the market outcome is that the supply of goods has been allocated to the buyer who values it most highly, as measured by their willingness to pay. This is consistent with the principle that free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. Therefore, option (i) is the correct answer. Option (ii) is not applicable in this case as Firm B is not producing the monitor at the least cost, but rather Firm A has lower costs.

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