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Chapter 5

Chapter 5 - Efficiency and Equity.docx

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University of Waterloo
ECON 101
Corey Van De Waal

Chapter 5 Efficiency and Equity Resource Allocation Methods Market Price People who get the allocated scarce resource are those who are willing to pay market price Most scarce resources we supply get allocated by market price We sell our labour services to the market and yet we buy most of what we consume in markets Command system allocates resources by the command of someone in authority ie at a job your labour time is allocated to specific tasks by command of an employer It works well in organizations with clear lines of authority but bad in an entire economy Majority Rule dictates the allocation of resources ie tax rates that allocate resources between private and public use and tax dollars between competing uses such as defence and health care It works well when the decision affects a lot of people and selfinterest must be suppressed t ouse resources efficiently Contest allocates resources to a winner ie Oscars the CEO is a winner of a contest It works well when the efforts of the participants are hard to monitor and reward directly First Come First Served allocates resources to those who are first in line ie restaurants for tables supermarkets for checkout It works well when scarce resources can serve just one person ata time in a sequence Lottery allocates resources to those with the winning number or come up lucky on some other gaming system ie lotteries can be as widespread as allocating land slots at some airports It works well when there is not effective way to distinguish among potential us
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