There are several different methods that can be used to allocate our scarce resources. There is no absolutely correct way of allocating scarce resources. A particular method might prove to be ideal in one situation but less satisfactory in other situations.

Methods of Allocation

MARKET SYSTEMis the method preferred in the United States. In our "free market system," what to produce, how much to produce, and the worth of goods and services, is decided by private buyers and sellers. Entrepreneurs seeing an opportunity for profits will produce and market a good or service. If the entrepreneur does a good job in anticipating the desires of the marketplace, then, through product sales, he or she will be rewarded with profits. On the other hand, if the entrepreneur does a poor job in anticipating the marketplace's desires, resulting in no or few sales, he or she will receive losses. Thus, it can be said that the market system (private buyers and sellers) allocates our scarce resources through the seller's willingness to produce goods and services and the buyer's willingness and ability to purchase goods and services.

BRUTE FORCEis another way of deciding who gets what. We see this method used in the animal kingdom. The biggest, strongest, and/or fastest animals get what they want. This method is usually very wasteful. The weaker individuals do not get enough scarce resources to survive properly or do not receive enough resources to become more productive. The stronger thugs tend to become fat and lazy, wasting scarce resources or not using them efficiently.

QUEUING(lining up) is another method for deciding who gets what. This method is based on the principle of first come/first served. This might be the preferred method of selling concert tickets, but this method has some inherent flaws. First, if this was the primary method for allocating all our scarce resources, too much of our time would be wasted standing in lines, and not enough time would be devoted to production. Also, when scarce resources get really limited, the purchase price rises, sometimes causing a black or underground market to develop. We have seen this happen at sporting events, when scalpers resell tickets for many times their original value.

RANDOM SELECTIONis when everyone has an equal chance. Allocation through random selection can be accomplished by drawing names out of a hat, by drawing straws, or by using more sophisticated methods generated by computers and random number tables. On the surface, this sounds like a good method for allocating scarce resources, and in some situations it is. However, it is not a good method in all situations. For example, if jobs were allocated by random selection, some of us might get the perfect job, one that we may never have gotten using any other method. But many people will receive jobs they are unqualified for or simply do not like. They will be like round pegs in square holes. Overall production will suffer.

TRADITIONmay be used to allocate scarce resources. What was done in the past is what will be done in the future. You might have studied the caste systems of India and feudal European monarchies; these were based on tradition. If your father was a musician, then you were to become a musician, regardless of whether you had willingness and talent. Obviously many resources and talents are wasted when tradition is used as a basis for allocation.

EQUAL SHARESis when each individual receives the same amount. Occasionally, this may be the best method for allocating scarce resources. For example, if you and your friend only have 10 minutes left to play a video game, each of you could play for five minutes, which would be fair. On a larger scale, however, this method might not be as fair, and many times it is very wasteful. For example, if everyone received an equal amount of food, then a person weighing 100 pounds may have too much food and some will be wasted, and a person weighing 200 pounds may not have enough food and will get sick. The problem is compounded by some people disliking some foods and others being allergic to some foods.

NEEDas a basis for resource allocation refers to those who appear to be the neediest going to the head of the line. It is extremely difficult to determine when another individual falls into this "needy" category. It is even more difficult to determine when this individual is no longer in need. Many times being needy is a value judgment based on one's own background. Many times need is based on hardships, but there are many tragic examples of people exaggerating their hardships or creating self-induced hardships to qualify as "needy."

PLANNED SYSTEMSexist in mostly socialist countries. Government planners decide what and how much is to be produced and distributed by whom, when, and to whom. Producers generally have little choice about what goods and services they will produce. Their main task is to meet their assigned production quotas. Prices are set by government planners and do not change according to supply and demand. In some situations, government planning works fairly well, as long as the economy is simple and the variety of goods and services desired is small. Furthermore, planned systems might even be necessary under certain conditions, during wartime, for example.

The best method for allocating scarce resources is to look at the situation and participants first and then to determine the tool for allocation.

Review Lesson 3

Directions: Answer each question below by writing a strong paragraph that includes supporting information from the lesson. Please cite your outside resources.

A strong paragraph includes a minimum of three to five details from the lesson and is written in Academic English form. For more information on Academic English form, refer to the documents in the Orientation.

1.Use a real-life example to describe the following allocation methods. Hint: Use family, friends, teams, church, and/or clubs for examples.

Brute Force

Market

Queuing

Random Selection

Tradition

Equal Shares

Need

Planned

2. Explain the Market System. Give an in-depth example of a Market System.

3. Explain the Planned System. Give an in-depth example of a Planned System.

4. Which allocation system do you think is the most productive or the fairest? Explain.

5. Compare and contrast the Market System and the Planned System.

Answer rating: 100% (QA)

Reallife Examples of Allocation Methods Brute Force In a group of siblings the strongest or most assertive sibling might use brute force to determine who gets the biggest slice of cake They might push ... View the full answer