LS 6 - CHAPTER 5 Efficiency and Equity Resource Allocation...

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Efficiency and Equity CHAPTER 5 Resource Allocation Methods Scare resources might be allocated by using any or some combination of the following methods: ± Market price ± Command ± Majority rule ± Contest ± First-come, first-served ± Sharing equally ± Lottery ± Personal characteristics ± Force How does each method work? Resource Allocation Methods Market Price When a market allocates a scarce resource, the people who get the resource are those who are willing to pay the market price. Most of the scarce resources that you supply get allocated by market price. You sell your labor services in a market, and you buy most of what you consume in markets. For most goods and services, the market turns out to do a good job.
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Resource Allocation Methods Command Command system allocates resources by the order (command) of someone in authority. For example, if you have a job, most likely someone tells you what to do. Your labor time is allocated to specific tasks by command. A command system works well in organizations with clear lines of authority but badly in an entire economy. Resource Allocation Methods Majority Rule Majority rule allocates resources in the way that a majority of voters choose. Societies use majority rule for some of their biggest decisions. For example, tax rates that allocate resources between private and public use and tax dollars between competing uses such as defense and health care. Majority rule works well when the decision affects lots of people and self-interest must be suppressed to use resources efficiently. Resource Allocation Methods Contest A contest allocates resources to a winner (or group of winners). The most obvious contests are sporting events but they occur in other arenas: For example, The Oscars are a type of contest. Contest works well when the efforts of the “players” are hard to monitor and reward directly.
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Resource Allocation Methods First-Come, First-Served A first-come, first-served allocates resources to those who are first in line. Casual restaurants use first-come, first served to allocate tables. Supermarkets also uses first-come, first- served at checkout. First-come, first-served works best when scarce resources can serves just one person at a time in a sequence. Resource Allocation Methods Sharing Equally When a resource is shared equally, everyone gets the same amount of it. You might use this method to share a dessert in a restaurant. To make sharing equally work, people must be in agreement about its use and implementation. It works best for small groups who share common goals and ideals. Resource Allocation Methods Lottery Lotteries allocate resources to those with the winning number, draw the lucky cards, or come up lucky on some other gaming system.
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This note was uploaded on 11/23/2011 for the course ECON 202 taught by Professor Brightwell during the Fall '08 term at Texas A&M.

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LS 6 - CHAPTER 5 Efficiency and Equity Resource Allocation...

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