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

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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....
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This note was uploaded on 10/13/2011 for the course ECON 101 taught by Professor Vanderwaal during the Spring '08 term at Waterloo.

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

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