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Summary resource allocation
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EfficienciesProductive Efficiency AUFOP inure efficiently and producing maximum output
:
Allocation Efficiency Resources are being
:
allocated where output is maximised
Economic Efficiency :
When productively and all natively efficient
Economic Systems
Market Economy : An economic system where resources are allocated by the market forces of supply + demand
↳A
price system is used to allocate resources
#method of allocating resources by thefree movement of price
Command / Planned Economy : An economic system in which most resources are state-owned and allocated centrally
Mixed Economy : An economic system where resources are allocated by a mixture of market forces +
government
intervention
,Evaluate the effectiveness of incentives on the behaviour of economic agents and resource
allocation
Incentive :
Something that motivates or encourages someone to do something
to 3 ( incentives are effective )
Households
Equi -
marginal principle
•
Involves maximising utility given a budget constraint
•
When individuals choose to consume one good + derive the satisfaction that it brings →
essentially sacrificing the satisfaction they could
enjoy womansunning another good
•
Therefore ,
the best a consumer can do is consume two goods at the point where the ratio of the
marginal utilities of the two goods equals the ratio of the prices
6) MV n =
MUY
Du Py
Eg Flights Flight N → -1500 300 Uti Is
%
300
•
-
.
, =
TOO →
Flight 4 1-80 160 utils 2 Whisper £1
→
,
t
0.6 utilspertl
↳ : -
causes demand for flight n t =
causes put
causes demand for flight y t =
causes Py T 1 Mil Pert 1
so oaths →
3¥ ¥
Flight u → -1900 , ,
,
Flight 4 two utils →
Theoretically products will eventually 1
give the same utility per f- rational for
↳ : -
,
censumen to demand flight 4
•
: .
incentive for individuals to maximise their own welfare should lead to prices to be determined
by the equi marginal principle -
→
reflects behaviour of rational consumers
4) If there's a good that gives a high level of utility , may not be consumed as it doesn't
maximise whole utility
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