The challenge we are dealing with is scarcity. We use the price system to ration scarce goods. The costs are opportunity costs and they are what other consumers are willing to pay for a product is a cost for the producer.
Rationing Mechanisms:
1. Need - neediest gets it first. This seems very appealing but it's too vague. Who determines need levels?
2. Queues - first come first serve. This is the most costly. The length of the line = price/cost
3. Lottery - fairest. However, the people who value/need it more might not get the good. Basketball lottery isn't fair. In 2007 the Celtics were the 2nd worse team but got the 5th pick in the draft because of the lottery and didn't get Kevin Durant for this reason.
4. Equal shares - communism. Cutting up makes some things worth nothing and not all parts/time cut up aren't worth the same.
5. Force/Kicking Ass/Might Makes Right - costly. You can't plan and it's not fair - same people never win
6. Merit - good moral connotations but hard to say who earns merit
Evaluation Rationing Mechanisms:
Competition comes from scarcity.
1. What is the nature of competition?
-is it destructive or constructive?
-price system is the only one not destructive.
-when people focus on competition they don't focus on other things
-but with the price system - competition focuses people on productive benefits
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