Efficiency and Equity, ch. 5

Efficiency and Equity, ch. 5 - Efficiency and Equity, ch. 5...

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Efficiency and Equity, ch. 5 I. Resource Allocation Methods a. Market Price 1. People willing and able to pay price get resource 2. For some items considered essential, provided by another method b. Command 1. Allocates resources by order of someone in authority 2. Works well in organizations which lines of authority and responsibility are clear and easy to monitor c. Majority Rule 1. Allocates resources in way that majority of voters choose 2. Works well when decisions being made affect large number of people d. Contest 1. Allocates resources to winner 2. Do good job when efforts of players are hard to monitor and reward directly e. First Come, First Served 1. Allocates resources to those who are first in line 2. Works best when scarce resource can serve just one user at time in sequence 3. Ex. Highway space f. Lottery 1. Allocate resources to who pick winning number, draw cards or come up lucky 2. Best when no way to distinguish among users of scarce resource g. Personal Characteristics 1. Allocated on basis of personal characteristics, people with “right” characteristic h. Force 1. Force of states is essential to uphold principle of rule of law II. Demand and Marginal Benefit 1. Resources are allocated efficiently when used in ways people value most highly a. Occurs when marginal benefit equals marginal cost b. Demand, willingness to Pay and Value 1. Value is what we get, price is what we pay 2. Value of one more unit of g/s is marginal benefit
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3. Willingness to pay determines demand, demand curve is a marginal benefit curve
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This note was uploaded on 05/06/2009 for the course MGMT 25100 taught by Professor Blanchard during the Spring '09 term at Purdue University-West Lafayette.

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Efficiency and Equity, ch. 5 - Efficiency and Equity, ch. 5...

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