1 1 The pricing system answers the three basic allocation questions in the following manner.

(a) What goods will be produced? Additional units of goods will be produced only if consumers value them more highly than the opportunity cost of the resources necessary to produce them.

(b) How will goods be produced? The methods that result in the lowest opportunity cost will be chosen. Since lower costs mean larger profits, markets reward producers who discover and utilize efficient (low-cost) production methods.

(c) To whom will the goods be distributed? Goods will be distributed to individuals according to the quantity and price of the productive resources supplied in the marketplace. A great number of goods will be allocated to persons who are able to sell a large quantity of highly valued productive resources; few goods will be allocated to persons who supply only a small quantity of low-valued resources.