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Resources might be allocated using these 8 ways:
- Market price
- Majority rule
- Command
- Contest
- First come, first serve
- Force
- Lottery
- Personal characteristics
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Marginal Benefit
- - value of one more unit of a good or service
- - measure it by the max. price that is willingly paid for another unit of the good or service
- - willingness to pay determines demand
- - the market demand curve is the economy's marginal social benefit (MSB) curve
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1) Consumer surplus
2) Producer surplus
- 1) value of a good minus the price paid for it, summed over the quantity bought
- 2) the price received for a good minus its minimum supply-rice, summed over the quantity sold
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Invisible hand
- adam smith - suggest that competitive markets send resources to the uses in which they have the highest value
- market forces persistently bring marginal cost and marginal benefit to equality and maximize total surplus
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deadweight loss
- the decrease in total surplus that results from an inefficient level of production
- comes from unerproduction or overproduction
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obstacles to efficiency that bring underproduction or overproduction
- price and quantity regulations
- taxes and subsidies
- externalities
- public goods and common resources
- monopoly
- high transactions costs
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Utilitarianism
- nineteenth century idea that only equality brings efficiency
- principle that states that we should strive to achieve "the greatest happiness for the greatest number."
- transfer income from rich to poor so income levels are equal
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symmetry principle
- requirement that people in similar situations be treated similarly
- equality of oportunity
- fairness has two rules: 1) the state must enforce laws that establish and protect private property 2) Private property may be transferred from one person to another only by voluntary exchange
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