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

question 73

Multiple Choice

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)

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Definitions:

Consumption

The employment of goods and services by domestic units.

Savings

The portion of disposable income not spent on consumption of goods and services, set aside for future use or for investment.

Disposable Income

The financial resources available to a household for saving and spending after subtracting income taxes.

Consumption

The part of income or the amount of wealth that is used for purchasing goods and services for personal use.