Lecture_5 - Lecture 5 EFFICIENCY & EQUITY 1....

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Lecture 5 EFFICIENCY & EQUITY 1. Welfare Economics Welfare economics is the study of how the allocation of resources affects economic well- being. Buyers and sellers receive benefit from taking part in the market. The equilibrium in a market maximizes the total welfare of buyers and sellers. 2. Resources Allocation Methods Market price When a market price allocates scarce resources, the people who are willing and able to buy a resource get the resource. Command A command system allocates the resources by the order of someone in authority. Works well in organizations with clear lines of authority. Does not work well at allocating resources in the entire economy. 2. Resources Allocation Methods Majority rule Resources are allocate in accord with majority vote. Works well when the allocation decisions being made affect a large number of people. Self-interest leads to bad decisions. Contest Resources are allocated to the winner. Contests work well when the efforts of the players are hard to measure. 2. Resources Allocation Methods First-come, first-serve Resources are allocated to those who are first in line. This allocation method works well when the resource can serve just one user at a time in a sequence. Lottery Resources are allocated to those who pick the winning number, or choose the lucky card Work best when there is no effective way to distinguish among potential users of a scarce resource. 2. Resources Allocation Methods First-come, first-serve Resources are allocated to those who are first in line. This allocation method works well when the resource can serve just one user at a time in a sequence....
View Full Document

Page1 / 25

Lecture_5 - Lecture 5 EFFICIENCY & EQUITY 1....

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online