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 A produces a monitor that Cassie buys but David does not,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, Firm A is able to produce the high-resolution computer monitor at a lower cost, which means they may be able to sell it at a lower price. Cassie may not be willing to pay as much for the monitor as David, but if she buys the monitor from Firm A, it demonstrates that she values the monitor at a higher price point than what Firm B is offering. This shows that free markets allocate the supply of goods to the 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.

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