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Chapter 5

ECON101 Chapter 5: Chapter 5. Efficiency and Equity (1)

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Corey Van De Waal

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Chapter 5. Efficiency and Equity
Resource Allocation Methods
Because resources are scarce, they must be allocated somehow
8 alternative methods of allocating scarce resources:
- Market price
- Command
- Majority rule
- Contest
- First-come, first-served
- Lottery
- Personal characteristics
- Force
Market price
- When a market price allocates a scarce resource, the people who
are willing and able to pay that price get the resource
- Two kinds of people decide not to pay the market price
o Those who can afford to pay but choose not to buy
o Those who are too poor so can’t afford to buy
- For example, poor people can’t afford to pay school fees and
doctors’ fees. Because poor people can’t afford items that most
people consider to be essential, these items are usually allocated
by one of the other methods
- A command system allocates resources by the order/command or
someone in authority
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