Book: Effiency and Equity - Resource allocation methods
8 important questions on Book: Effiency and Equity - Resource allocation methods
What are the 8 resource allocation methods?
1. Market price
2. Command
3. Majority rule
4. Contest
5. First come, first served
6. Lottery
7. Personal characteristics
8. Force
Resource allocation method: Market Price
Allocates a scarce resource to 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:
those who can afford to pay but choose not to buy and those who are simply to poor and cannot afford to buy
therefore, essential goods and services such as healthcare and school fees are allocated by different methods.
Resource allocation method: Command
Allocates resources by order (command) of someone in authority.
Used extensively in firms, public organisations and government departments.
This method does not work when the range of activities of to be monitored is large and when the activities are difficult to monitor
(ex. Goverment department monitoring every firm in the economy)
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Resource allocation methods: Majority Rule
Allocates resources in a way that majority of voters choose.
Used by society to elect representative governments that make some of the biggest decisions.
Works well when the decisions being made affects a large number of people and self-interest must be suppressed to use resources effectively
Resource allocation methods: Contest
Allocates resources to a winner ( or a group of winners)
Used by sporting events.
Works well when the efforts of the 'players' are hard to monitor and reward directly.
Resource allocation method: First-Come, First-Served
Allocates resources to those who are first in the queue.
Such as restaurants and even space on the motorway.
Works best when a scare resource can serve just one user at a time in a sequence and minimises the time spent waiting for the resource to become available
Resource allocation method: Lottery
Allocates resources to those who pick the winning number, draw the lucky cards or pick the winning ticket in a gamble.
Also used to allocate licensed taxi permits, places in the London marathon, fishing rights, electromagnetic spectrum used by mobile phones
Not an effective way to distinguish among potential users of a scarce resource
Resource allocation method: Personal characteristics
People with the " right" characteristics get the resources, such as when picking a marriage partner.
this method is also used unfairly, by allocating the best jobs to white, able-bodied males and discriminating against minorities, older people or females.
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