I Don't Want Much, I Just Want More: Allocation, Competition and Productivity
This lesson printed from:
Posted April 6, 2004
Posted: April 6, 2004
Updated: June 1, 2007
In this lesson, students will examine different methods for allocating resources, taking note of the cost and benefits associated with each method. This analysis will help students to understand competition and productivity as important elements of the U.S. market economy.
- Identify five methods used to allocate resources.
- Compare the costs and benefits of the methods identified.
- Explain the role of government in methods used to allocate resources.
Explain the need for systems of allocation: Because resources are scarce, there is never enough to satisfy everyone. In every economy, therefore, people need to settle on means for allocating resources-- and the goods and services resources are used to produce. Allocating resources requires rules. Those rules determine the type of competition that takes place. Even not having rules will quickly become a rule-- the rule of force, according to which people who are mean and strong solve the allocation problem by taking what they want from others. Allocation by the rule of force motivates competition that is very destructive (since existing wealth is destroyed as people fight over it and there is little motivation for anyone to produce new wealth), so that even the mean and strong will not benefit from it long.
Fortunately, the rule of force is not the only possibility. Students may learn about other methods for allocating resources, and the goods and services they are used to produce, in the Task section below (on the student version).
[Students should read the lesson presented in the Task section in advance. This lesson is available as a handout for convenience. Also, a glossary is available as a handout, should students need it.]
The task section that is available on the student version of this lesson is helpful when conducting the lesson in class. Therefore, it is suggested that the teacher take a look at this section. A document version of the task section is available for use. Depending on the amount of time to be spent on the Allocation lesson, choose Activity #1 or Activity #2.
Activity 1: First Come-First Serve Allocation Game
[NOTE: The following activity is to be conducted in class using the allocation worksheet, with guidance from the teacher.]
Assume that the first 10 people in line tomorrow at the local library will receive $100 at 9:00 a.m. when the library opens. Tell your students that their time is worth $8 an hour and have them record when they will get to the library to start waiting. They will have no idea how many people are in line ahead of them; thus they cannot know in advance whether the times they decide upon will be early enough to get them the $100. They can find out only by waiting until 9:00 a.m. (This also would be the case for most individuals in other instances in which a large number of people hope to get what everyone is waiting for, as in the case of tickets for a concert). When all your students have filled in their times for starting to wait, they will then need to use the Allocation Worksheet to figure out how long they will wait in line. Then, they will turn in their times to the teacher and the teacher will rank them in descending order on the basis of their wait time. The 10 students who waited the longest each will receive $100 as part of their score.
If there is a tie for the 10th winning place, give all those who arrived at the same time $100 as part of their score also. To reduce the probability of ties, allow the students to state their arrival times down in quarters of hours (3:00 a.m. or 3:15 a.m., for example). Of course, it is important for students to choose their arrival time independently, so that no student knows what another student is doing.
The score of the 10 (or more) winners is $100 minus (-) $8 times (x) the hours they waited in line. For example, if a student arrives at 2:30 a.m. and receives $100, her score will be $100 - ($8 x 6.5) or $100 - $52 = $48.
Those students who don't receive $100 will receive a score of minus $8 times the hours they waited in line. For example, if a students arrives and 5:00 a.m. and is not included among the first 10 that are waiting to enter the library, his score is $-8 x 4 = $-32.
(This game illustrates that allocating a good or service on the basis of first come-first serve is usually not very productive. Waiting in line imposes a real cost on consumers and it does nothing to motivate anyone to provide more of what they want to consume. In the example given, students are waiting in line for money, but the waiting does nothing to increase the amount of money available.)
This activity can be found in the form of an allocation worksheet for the students to work through.
After finishing this activity, discuss with your students the following questions:
1. What have you learned from this experience?
2. What this "first come-first serve" strategy a productive one?
3. Was it worth your time to wait for the $100?
4. Would you wait in line again, knowing what you do now? Why or why not?
5. When do you need to get there to ensure some money without too high an opportunity cost?
Activity 2: Matching Game
Students should match the person on the left with the allocation method on the right, according to which method each of the listed persons would most likely favor when competing for a product that he or she wants in this Interactive Activity.
Why might the person feel differently if he or she were choosing an allocation method that would be used for all products and services, including the products and services he or she sells?
[Answer: For most goods and services the best choice for everyone will likely be market allocation because it will result in a wealthier economy with more of everything being produced.]
[NOTE: This matching activity is also available as a handout (answers sheet included). Also, because Activity one can be somewhat lengthy, it up to the teacher to decide whether or not to use Activity 2 as part of the lesson or as an Extension Activity. Also, for middle school aged children, Activity 2 is much more appropriate than Activity 1 and should therefore be substituted as necessary.]
Some methods used to allocate resources include: rule of force, first come-first serve, government, market systems, and allocation by appearance and personality. In fact, almost everything we do can be used for allocating resources, goods and services--for example, awarding a prize to the person in the classroom who has the greatest number of freckles on her nose or the greatest number of hairs on his head.
The most common method used in the United States is allocation by markets. Market competition promotes productive cooperation by providing each of us with the information and motivation to pursue our interests in ways that best serve the interest of others. Market competition tells firms what to produce, and how much to produce. Therefore, while market competition doesn't lead to perfect cooperation, the benefits are higher and the costs lower, in most situations, than through other methods.
Students can test their knowledge by taking the Allocation, Competition and Productivity multiple choice quiz or you may decide to use the printable version and test them in class.