Market for Private Goods
The market can function only in situation where the “exclusion principle” applies, i.e., where A’s consumption is mad contingent on A’s paying the price, while B, who does not pay, is excluded. Exchange cannot occur without property rights, and property rights require exclusion. Given such exclusion, the market can function as an auction system. The consumer must bid for the product, thereby revealing preferences to the producer, and the producer, under the pressures of competition, is guided by such signals to produce what consumers want. At least, such is the outcome with a well-functioning market.