Class01_28

Class01_28 - Class Notes(cover part of Chapter 5 in the...

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01/28/2008 Class Notes (cover part of Chapter 5 in the textbook) Class Outline Resource Allocative Methods Demand and Marginal Benefit Supply and Marginal Cost Resource Allocative Methods 1. Market Price : when the market price allocates a scarce resource, the people who are willing and able to pay that price get the good. However, for some goods (e.g., education and medical fees) we need other allocative methods. 2. Command System : A command system allocates resources by the order of someone in authority. This method works best when the lines of authority and responsibility are clear and monitoring the activities is easy. 3. Majority Rule : the majority rule allocates resources in the way that a majority of voters choose. It works best when the decisions being made affect a large number of people and self-interest must be suppressed to use resources most effectively. 4. Contest : A contest allocates resources to a winner. It works best when the efforts of the “players” are hard to monitor and reward directly.
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Class01_28 - Class Notes(cover part of Chapter 5 in the...

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