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?
A) (i) only
B) (ii) only
C) both (i) and (ii)
D) neither (i) nor (ii)

Question

Quizplus · Accepted Answer

This market outcome illustrates the second principle of economics: people face trade-offs. Cassie is willing to settle for a lower quality monitor in exchange for a lower price, while David is willing to pay a higher price for a higher quality monitor. Firm A is able to cater to Cassie's preference for lower prices and produce a monitor she buys. However, in doing so, the firm is sacrificing potential profit from David who is willing to pay more for a higher quality monitor. This trade-off is a fundamental concept in economics.

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