Another type of opportunity costs: what other customers are willing to pay
ex: hotel raised price of room during golf tournament
-gouged?! What if put out sign saying incr. b/c of tragic accident? Does the reason matter?
Price a business charges is what people are willing to pay, what they value at that price
-->Rizzo didn't like $$, shared bed instead of pay money for own room
-incentives for homeowners to step in and offer rooms for cheaper

Many ways to allocate scarce goods to people
ex: How get 5 fish to 12 people?
-all 12 can't have a fish
-price system = the rule to follow

ex: Pres Obama criticized insurance companies for rationing coverage
consider, # of people who need healthcare compared to amount of health care provided
BUT we ration everything else

Sample Rationing Criteria

1) Need

-vague, subjective, hard on a grand scale

-Who determines what is need? $? physical pain?

-How demonstrate more needy? (costly, uncertain)

2) Queue

-First come first serve; waiting inconvenient 

-Even if free, the line is cost

  --perhaps camp out, pay someone to wait for you

-CEO of company, poor working all hours, perhaps cannot afford to wait

3) Lottery

-Often considered "fair"

-Value/need goods but may/may not get it

4) Equal Shares

-Pure communism, divide equally and everyone gets some

-Low cost role

-Problem: not able to properly divide

  --If large number, barely receive anything and reduce the value

5) Might Makes Right

-Free for all! Biggest/strongest gets the fish by fighting for it

-Planning difficult, costly

6) Merit

-Ration scarce goods to people who "deserve" it

-est criteria (think college admission) social judgement

-says nothing about the value of achievment

   --Does intention matter over outcome? Problem: reward for duty rather than success

Evaluation of Rationing Mechanism

1) Where does competition come from?

-does not come from rationing 

-Derived from scarcity -->compete regardless of "rules"

2) What is the nature of competition?

-Destructive or Constructive

Destructive:

ex: Boys compete for Caroline, to get the date they need the biggest biceps

-->guys work out curls constantly;

Destructive, costly; they're not studying or doing what they enjoy

Competition: here, only focus on the self and produce nothing to sociey

ex: Rizzo does steroids to outcompete

-->BUT other guys do roids too and everyone gets bigger

-Still only one winner, nothing better produced

Constructive:

ex: Caroline wants the guys to bid for a date

-Boys compete by making $

-->teach econ, clean floors, bake goods

-->society is richer! Competition, something of value produced and the "losers" still have $

3) What are incentives for producers to make/deliver more?

-problem of supply

-compete over prices, people care about income

Consider: seem poorer, college will reward defect, dishonesty