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Chapter 5

ACTG 2010 Chapter Notes - Chapter 5: Blue Triangle, Marginal Utility, Social Cost

Course Code
ACTG 2010
Douglas Kong

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Ch. 5: Efficiency and Equity
Resource Allocation Methods
market price
opeople who are willing and able to pay get the resource
people can choose not to pay, or people are too poor to afford it
ocommand system: allocated resources by the order of someone in authority
oworks well in firms (job allocation) with clear lines of authority, but badly in an entire
majority rule
oallocates resources in the way that a majority of voters choose
oWorks best when decisions being made affect large number of people and self-interest
must be suppressed (decisions on taxes, etc.)
oallocates resources to a winner (or group of winners)
oworks well when the efforts of the "players" are hard to monitor and reward directly
first-come, first-served
oallocated resources to those who are first in line
oworks best when a scarce resource can serve just one user at a time in a sequence
minimizes the time spent waiting for the resource to become free
sharing equally
oeveryone gets the same amount
oworks best for small groups that share a common goal
oallocate resources to those that win (unlike contest, no skill is involved; luck)
oworks best when there is no effective way to distinguish among potential users
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