ECON101 Chapter Notes - Chapter 5: Lottery, Market Price, Economic Surplus

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Shi Lei Niu

Document Summary

The goal is to evaluate ability of markets to allocate resources efficiently and fairly. Resources are scarce, so they must be allocated somehow. When a market price allocates a scarce resource, the people who are willing and able to pay that price to get the resource. 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 can"t afford to buy. A command system allocates resources by the order (command) 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. Works badly when range of activities to be monitored is large and when it is easy for people to fool those in authority. Majority rule allocates resources in the way that a majority of voters choose.