Econ Express Fundamentals | Concept 11: Allocation Strategies (2024)

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Overview: First-come-first-served? Price? Sharing? Figuring out who gets what can be complicated! This lesson will help you understand a variety of methods people use to divide up resources, goods, and services.

  • Econ Express Fundamentals | Concept 11: Allocation Strategies (1) Support Materials

  • Econ Express Fundamentals | Concept 11: Allocation Strategies (2) Standards

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Beginner

Econ Express Fundamentals | Concept 11: Allocation Strategies (3)

All economic systems must answer three basic economic questions including what to produce and how to produce their goods and services. The third of the three basic economic questions is: “Who gets the goods and services?” In other words, how does an economy allocate pizzas, health care, housing and education – all of which are in high demand? Answering this question is more complicated than it might seem. While the country’s economic system influences this process, not all goods and services are treated the same way. Allocation strategies are the methods by which goods and services are distributed to the people who want them. There are nine basic strategies, and sometimes a combination is used. The nine strategies are:

  • Price: the good or service goes to the person willing and able to pay the most for it or the person willing to pay a stated amount at a specific time, like an eBay auction
  • First-come-first-served: the good or service goes to the first person to claim it, like concert tickets (which also require money!)
  • Majority rule: the good or service goes to the person who gets a majority (or sometimes a plurality) of a vote, like a Senate election
  • Sharing: the good or service is divided and given to multiple people who mutually agree to only use part of it, like a meal at a soup kitchen
  • Force: the good or service is taken by someone through legal or non-legal means (there is no voluntary exchange), like theft
  • Competition: the good or service is awarded to the person who won a game, event, contest, or something similar, like an Olympic gold medal
  • Arbitrary characteristic: the good or service is given to someone just because they meet certain requirements – age, grade, geographic location, race, gender, shoe size, etc., like giving a balloon to the youngest child. The characteristics are “arbitrary” because they can change.
  • Command: the good or service is given out by a government entity, like housing in the Soviet Union
  • Random/Lottery: the good or service is given out by chance with everyone having an equal opportunity to get it, like an actual lottery

Intermediate

Econ Express Fundamentals | Concept 11: Allocation Strategies (4)

Many goods and services use combinations of strategies. While a lottery is used to distribute large sums of money, usually to enter the lottery you have to purchase a ticket, which introduces price into the mix. Some people own time-shares where they agree to split a vacation condo or house with other people, but the dates it is to be used are first-come-first-served. Some competitions have entrance fees or are limited to competitors who meet certain characteristics.

The allocation strategy for a good or service can also change depending on other circumstances. Price is the most widely used allocation strategy in the United States, but during World War II rationing was introduced, which limited the quantity of goods and services people could buy even if they were willing to pay more. The age requirement to collect Social Security has changed several times over the years. In the late 1700s to early 1800s, states, like Georgia, experimented with different strategies for allocating land using various combinations of characteristic, price, lottery, force and sharing.

Advanced

Econ Express Fundamentals | Concept 11: Allocation Strategies (5)

The most important lesson to take away from allocation strategies is that one strategy is not universally better or worse than another. Each strategy comes with unique strengths and weaknesses. You would not want to randomly distribute medicine, for example because random distribution ignores the actual needs of a group of people. Majority rule is typically viewed as a fair way of making decisions, but it can be time consuming and can create situations where minority groups never get access to certain goods and services. First-come-first-served seems like an incentive-based strategy because in theory the people who really desire the item will be willing to get in line first. In reality, however, this strategy heavily favors those with free time or those geographically close to the good or service. What strengths and weaknesses do you see with each of the strategies, and can you identify goods and services that make use of each one?

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Practice

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Below are five questions about this concept. Choose the one best answer for each question and be sure to read the feedback given. Click “next question” to move on when ready.

Social Studies

SSEF4.c

Compare and contrast strategies for allocating scarce resources, such as by price, majority rule, contests, force, sharing, lottery, authority, first-come-first-served, and personal characteristics.

Support Materials

Toolkit

Econ Express Fundamentals | Concept 11: Allocation Strategies (6) Econ Express Fundamentals | Concept 11: Allocation Strategies (7) Stranded: Allocation Strategies Edition (435.05 KB)

Econ Express Concepts

All academic subjects have a foundation. This domain features the key concepts upon which Economics is built.

Concept 1: Scarcity

Concept 2: Opportunity Costs

Concept 3: Productive Resources

Concept 4: Entrepreneurship

Concept 5: Marginal Benefit and Marginal Cost

Concept 6: Incentives

Concept 7: Specialization

Concept 8: Voluntary Exchange

Concept 9: Economic Systems

Concept 10: Economic and Social Goals

Concept 11: Allocation Strategies

Concept 12: Roles of Government in the US Economy

Concept 13: Standard of Living

Concept 14: Production Possibilities Curves

Econ Express Fundamentals | Concept 11: Allocation Strategies (2024)

FAQs

What are the allocation strategies in economics? ›

Allocation strategies are the methods by which goods and services are distributed to the people who want them.

What are the 9 strategies for allocating scarce resources? ›

Compare and contrast strategies for allocating scarce resources, such as by price, majority rule, contests, force, sharing, lottery, authority, first-come-first-served, and personal characteristics.

What is allocation of resources in economics class 11? ›

allocation of resources, apportionment of productive assets among different uses. Resource allocation arises as an issue because the resources of a society are in limited supply, whereas human wants are usually unlimited, and because any given resource can have many alternative uses.

What is an example of force allocation? ›

For example, when using the rule of force method, the candy could be allocated through a class fight where the victors take the candy. While this method benefits those who are strong and may motivate others to become stronger, the potential costs include it is very destructive and may result in injuries.

What are five different types of allocation? ›

What are the different types of allocations?
  • Direct Allocation. ...
  • Indirect Allocation (Expense). ...
  • Indirect Allocation (Revenue). ...
  • Indirect Allocation (Misc.). ...
  • Indirect Cost Allocation.

What are the most common allocation methods? ›

Three common methods are: (1) the direct method, (2) the step (or sequential) method, and (3) the reciprocal method. The direct method is the simplest, the step method sacrifices some simplicity but offers an opportunity for improved accuracy, and the reciprocal method is the most accurate but also the most complex.

What are the 8 allocation strategies? ›

There are different ways to distribute goods and services (by prices, command, majority rule, contests, force, first come, first served, sharing equally, random selection or lottery, personal characteristics, and others), and there are advantages and disadvantages to each.

What is the allocation of scarce resources in economics? ›

1.1 The allocation of scarce resources

Economics is about the allocation of scarce, alternatively usable, resources. These resources include the capital stocks (renewable and nonrenewable natural capital, manufactured capital, cultural capital) and the flow of goods and services they yield.

What are three forms of allocation? ›

There are three distinct kinds of allocations: indirect, direct, and simple.

What is the problem of resource allocation in economics class 11? ›

The problem of allocation of resources arises due to scarcity of resources. Resources are limited and scared in nature. A choice is to be made which wants should be satisfied and which should be left and unsatisfied.

What is the problem of resource allocation Class 11? ›

The problem of allocation of resources arises due to the scarcity of resources, and refers to the question of which wants should be satisfied and which should be left unsatisfied. In other words, what to produce and how much to produce.

What is allocation of resources in economics with examples? ›

This includes human labor, equipment, and raw materials. The best example of resource allocation is deciding where business resources should be utilized. The ideal method of resource allocation involves meeting consumer demand with the lowest use of resources.

What are the four phases of resource allocation process? ›

Includes the Planning, Programming, Budgeting, and Execution (PPBE) process, the congressional budget enactment process, the apportionment of appropriated funds, and budget execution.

Which is an example of an allocation decision responses? ›

Answer and Explanation:

So, setting coal aside for its purpose to burn as a heating fuel is an example of an allocation decision.

What is an example of over allocation? ›

An example of resource overallocation: A resource is booked for 8 hours on one project and 6 hours on another project in one day. However, since the professional only has 8 hours of bandwidth daily, the resource is allocated by 6 hours.

What are the three economic systems of allocation? ›

Compare how the three system of allocation (market, command and tradition) answer the basic questions of production and distribution.

What are the three primary methods of resource allocation? ›

These three resource allocation methods provide specific guidance and steps to help you determine how to best assign resources:
  • Method #1: Critical Path.
  • Method#2: Critical Chain.
  • Method #3: Resource Leveling and Smoothing.

What is the main allocation method used in a free market economy? ›

In its purest form, in a free market economy, the allocation of resources is determined by supply and demand without government intervention.

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