Textbook Notes (369,035)
Canada (162,359)
Economics (708)

Textbook Notes - Oct 5.docx

4 Pages
Unlock Document

Economics 1021A/B
Michael Parkin

Nicole Wallenburg Mr. Parkin Economics Oct 3, 2011 Economics - Textbook Notes Resource Allocation Methods 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 no to pay the market price: those who can afford to pay but choose no to buy, and those who are too poor and simply cant afford to buy. Command 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 preformed. 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 authority. Majority Rule Majority rules allocated 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 ruls works well when the decisions being made affect large numbers people and self-interest must be suppressed to use resources most effectively. Contest A contest allocates resources to a winner (or a group of winners). Contests do a good job when the efforts of the “players” are hard to monitor and reward directly. First-Come, First-Served A first-come, first-served method allocated resources to those who are first in line. It works best when a scarce resource can serve just one user at a time in a sequence by serving the use who arrives first, this method minimizes the time spent waiting for the resource to become free. Lottery Lotteries allocate resources to those who pick the winning number, draw the lucky card, or come up lucky in some other gaming system. They work the best when there is no effective way to distinguish among potential users of a scarce resource. Personal Characteristics When resources are allocated on the basis of personal characteristics, people with the “right” characteristics get the resources. Some of the resources that matter most to you are allocated in this way. Force Force plays a crucial role, for both good and ill, in allocating scarce resources. Nicole Wallenburg Mr. Parkin Economics Oct 3, 2011 Demand and Marginal Benefit Demand, Willingness to Pay, and Value The value of one more unit of a good or service is its marginal benefit. And we measure marginal benefit by the maximum price that is willingly paid for another unit of the good or service. But willingness to pay determines demand. A demand curve is a marginal benefit curve. Individual Demand and Market Demand The relationship between the price of a good and the quantity demanded by one person is called individual demand. And the relationship between the price of a good and the quantity demanded by all buyers is called market demand. The market demand curve is the horizontal sum of the individual demand curves and is formed by adding the quantities demanded by all the individuals at each price. The market demand curve is the marginal social benefit (MSB) curve. Consumer Surplus When people buy something for less than is it worth to them, they receive a consumer surplus. A consumer surplus is the value (or marginal benefit) of a good minus the price paid for it, summered over the quantity bought. All goods and services have decreasing marginal benefit, so people receive more benefit from their consumption than the amount they pay. Supply and Marginal Cost Supply, Cost, and Minimum Supply-Price Firms make a profit when they receive more from the sale of a good or service than the cost of producing it. Cost is what a producer gives up, and price is what a producer receives. The cost of producing one more unit of a good or service is its marginal cost. Marginal cost is the minimum price that producers must receive to induce them to offer one more unit of a good or service for sale. But the minimum supply-price determines supply. A supply curve is a marginal cost curve. Individual Supply and Market Supply The relationship between the price of a good and the quantity supplied by one producer is called individual supply. And the relationship between the price of a good and the quantity supplied by all producers is called market supply. The market supply curve is the horizo
More Less

Related notes for Economics 1021A/B

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.