CHAP 5 – Efficiency and equity

CHAP 5 – Efficiency and equity - CHAP 5...

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CHAP 5 – CHAP 5 – Efficiency and Equity Efficiency and Equity Olivier Giovannoni 304K: Introduction to Microeconomics Sept 17 2007
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Resource allocation methods Resource allocation methods Resources are scarce. Do markets do a “good” allocation of resources, is it an efficient and fair process? 8 major types of allocation processes: Market prices (the price is given by the market and people adjust. It can be too expensive for some) Command (“order” to do. Widespread and works well as long as the activities can be monitored) Majority rule (“vote” to decide what’s best for the majority) Contest (prize list given out to winners, unfair to the non- winners) CHAP 5 – Efficiency and equity 2
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Resource allocation methods (…) Resource allocation methods (…) First-come, first served (ex: restaurant tables, taxi cabs…) Lottery (random allocation) Personal characteristics (movers require strong men… This allocation process is often discriminating: the good- looking bartender or waitress) Force/power (very widespread: laws, inducements, competitor strength…) Compared to the alternatives, is the market doing a good job and what can prevent the market to work efficiently and fairly? We need to go back to markets: S, D and  CHAP 5 – Efficiency and equity 3
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Social supply and demand Social supply and demand We say that resources are used in an efficient way when they are used in the way that people value the most (buyers and sellers). This happens when D=S (in equilibrium)
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CHAP 5 – Efficiency and equity - CHAP 5...

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