Chapter 5: Efficiency & Equity Flashcards
What does it mean to allocate resources?
How can we obtain scarce resources
What are the 8 alternatives to allocate resources?
- Market price
- Command
- Majority rule
- Contest
- First come, first served
- Lottery
- Personal characteristics
- Force
7.
How do you allocated resources with market price?
People who are willing and able to pay get the resource
How do you allocate resources with command?
Someone of authority dictates what happens with the resource
How do you allocate resources with majority rule?
Society votes and decides what happens with the resource
How do you allocate resources with contest
People compete and the winner gets the resource
How do you allocate resources with first come, first served?
Those who come first get the resource
How do you allocate resources with lottery
The lucky winner gets the resource
How do you allocate resources with personal characteristics?
People with certain characteristics get the resource
How do you allocate resources with force?
Resources allocated by force. Ex. War and theft
What is efficient allocation?
When we produce the goods and services that people value the most
What is individual demand?
The relationship between the quantity demanded and the price for an individual
What is the market demand
The horizontal sum of the individual demand curves
What is consumer surplus?
The excess benefit that consumers receive from a good.
The consumers expect to pay a price higher than the equilibrium so they actually get more than they expect
Where is consumer surplus on the graph?
It is the space in between the demand curve (below it) and above the equilibrium.
