The allocation problem asks which key question?

• A. How to maximize profits with priced resources
• B. What to do with resources that cannot be priced, such as air or water
• C. How to price labor
• D. How to allocate capital to stocks and bonds

Answer: (B)

Resource allocation under scarcity is the key idea. Markets can price some inputs, guiding their use, but many essential resources don’t have straightforward prices—air and water are classic examples. The allocation problem is about deciding how to use these unpriced resources to meet current needs while preserving them for the future. That’s why the best answer centers on what to do with resources that cannot be priced, since pricing alone can’t steer their use. In practice, this leads to policy tools, regulations, or non-market mechanisms to manage such resources. The other options focus on pricing or investing in priced inputs or on profit-maximization with priced resources, which aren’t addressing the fundamental allocation challenge posed by unpriced resources.