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econpart3 Notes.docx

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ECON 1000
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Chapter 5Resources are scarce so they must be allocated somehow Trading in markets is just one of several alternative methods Resources might be allocated by Market Price When a market price allocates a scarce resource the people who are willing and able to pay that price get the resources Two kinds of people decide not to pay the market price those who can afford to pay but choose not to buy and those who are too poor and simply cant afford to buyCommand A command system allocates resources by the order of someone in authority A command system works well in organizations in which the lines of authority and responsibility are clear and it is easy to monitor the activities being performed But a command system works badly when the range of activities to be monitored is large and when it is easy for people to fool those in authorities Majority rule It allocates resources in the way that a majority of voters choose Societies use majority rule to elect representative governments that make some of the biggest decisions Majority rule works well when the decisions being made affect large numbers of people and selfinterest must be suppressed to use resources most effectively Contest It allocates resources to winners Contests do a good job when the efforts of players are hard to monitor and reward directly When a manager offers everyone in the company the opportunity to win a big prize people are motivated to work hard and try to become the winner Only few people end up winning the prize but many people work harder in the process of trying to win The total output produced by workers is much greater than it would be without the contestsFirstcome firstserved it allocates resources to those who are first in lineFirstcome firstserved works best when a scarce resource can serve just one user at a time in a sequence By serving the user who arrived first this method minimizes the time spent waiting for the resource to become free Lottery It allocates resources to those who pick the winning number draw the lucky card or come up lucky on some other system Lotteries work best when there is no effective way to distinguish among potential users of a scarce resource Personal characteristics people with right characteristics get the resource Example Allocating the best jobs to white peopleForce It plays a crucial role for both good and ill in allocating scarce resources War has played enormous role historically in allocating resources On the other hand the force
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