7 The interaction of individual choices Immediately after an

7. The interaction of individual choices Immediately after an ice storm brought down power lines throughout the region, hardware stores were sold out of batteries and flashlights. However, within a couple of days, special deliveries brought in extra batteries and flashlights, and everyone who wanted to buy a flashlight or batteries was able to do so Which of the following principles of economic interaction best describes this scenario? When markets do not achieve efficiency, government intervention can improve overall welfare. O Markets allocate goods effectively. All costs are opportunity costs O There are gains from trade

Solution

Market allocates goods effectively- is correct

Due to ice storm supply of batteries and flashlights decreased but demand was unchanged. So to benefit from the selling of flashlights and batteries, new suppliers or old suppliers with new technology brought flashlights and batteries in the market.

It tells us that free market always find a way to reach efficient level of production.