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CHAPTER 1 & 2

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SurveyFor each of the following questions

choose one of the following answers:

a. completely fair

b. acceptable

c. unfair

d. very unfair

e. totally unacceptable

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Survey

At a sight-seeing point, reachable only on foot, a stand selling bottled water has been established. The bottled water is sold to thirsty hikers.

The price is one dollar per bottle. Early each morning 100 bottles are carried up the hill.

On a particularly hot day 200 hikers want a bottle of water. How do you evaluate the following means to distribute the water among the hikers.

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1. Raising the price on the water until the number of hikers willing and able to purchase the water equals the water available.

2. Allocating the water on a first come first serve basis at $1 per bottle.

3. The government buys the water at $1 per bottle and gives it to whom it wants

4. Having the hikers enter a lottery to see who gets the water.

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SurveyA physician has been providing medical

services at a fee of $100 per patient and typically services 30 patients per day.

One day the flu bug has been so vicious that the number of patients attempting to visit the physician exceeds 60.

Please indicate how fair you consider the following means to distribute the physician’s services among the flu victims.

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1.A price increase until the number of patients willing and able to pay the price equals the number of patients the physician will see.

2.Selling the services at $100 per patient on a “first come, first served” basis.

3.The local authority (government) pays the physician $100 per patient and chooses who is to receive the services.

4.Selling the patient services for $100 per patient following a random procedure such as a lottery to determine who receives the services.

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SurveyA physician has been providing medical

services at a fee of $100 per patient and typically services 30 patients per day.

After purchasing a blood analysis evaluator for $100,000, the physician raised the price to $200 per visit.

How do you evaluate this price rise?

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Survey

There are many more kidney patients needing new kidneys than there are kidney donors.

Please indicate how you evaluate the following means to distribute kidneys among the patients.

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1.Potential recipients buy the organs from donors, paying a price sufficient to equalize the number of kidneys needed and the number provided.

2.Allocating the organs on a “first come, first served” basis.

3.The government pays for the operations and provides the organs according to its own allocation scheme.

4.Providing the organs according to a random procedure such as a lottery.

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SurveyAZT is the only pharmaceutical to date that

effecitvely retards the onset of AIDS once HIV has been contracted.

Only one company produces the drug, Burroughs-Wellcome.

Burroughs-Wellcome can produce only 100 thousand capsules a day but the daily need is 300 thousand capsules.

Evaluate the following means to distribute the capsules.

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1.Burroughs Wellcome raises the price until all those willing and able to pay the price get AZT.

2. The capsules are sold on the basis of the length of time a patient has had the HIV. Everyone pays the same

3.The government purchases the capsules from Burroughs-Wellcome and provides according to its own allocation scheme.

4.AZT is provided to a fixed number of people at a constant price according to a random procedure such as a lottery.

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Survey

There are many more students wanting to get into ASU’s College of Business than there are spots available.

Please indicate how you evaluate the following means to distribute openings among the applicants.

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1. The price of admission is increased until the number of students willing and able to pay the price get admitted.

2.Allocating the openings on a “first come, first served” basis.

3.The administration decides who gets in.

4. Drawing in a lottery where winners get admitted to the College.

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ResultsYou have selected A, B, C, D or E for each

question. Look at each question 1: How many A’s do you have? How many B’s, C’s, D’s, E’s?

Now look at each question 2, how many A,B,C,D or E?

Now look at each question 3, how many A,B,C,D or E?

Now look at each question 4, how many A,B,C,D or E?

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Results from OthersA survey of three groups -- the general

public, MBA students, and economists -- have taken this survey over time. Here are their responses.

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The Results of the Survey

Price FirstCome

Govt Random0

10

20

30

40

50

60

70

80

Price FirstCome

Govt Random

Public

MBA

Econ

Percent Choosing A or B.

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Survey When Scarce Item is Health Related

When the item that is scarce is related to health -- such as physician services, health insurance, organs, AZT, or others -- the survey results are different.

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Health

Price FirstCome

Govt Random010

20304050

60708090

Price FirstCome

Govt Random

Public

MBA

Econ

Percent Choosing A or B

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Health

Price FirstCome

Govt Random010

20304050

60708090

Price FirstCome

Govt Random

Public

MBA

Econ

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Price FirstCome

Govt Random0

10

20

30

40

50

60

70

80

Price FirstCome

Govt Random

Public

MBA

Econ

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Questions from Survey

Why is the public so wary of price?

Why does the public favor government?

Why do economists favor price?

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Focus on What Each Mechanism Would Mean if Applied to Everything

First Come First Served Would you have an incentive to work

What would you do with your income?

How would you attempt to increase your quality of life?

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Random Applied to EverythingWould you have an incentive to

work?

What, in fact, would you have an incentive to do?

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What if Government Allocated Everything

What would your incentive be in this case?

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SurveyIs the first come first served system fair?

Is the govt scheme fair?

Is the random fair?

Is the price system fair?