2. Chapter 2 ECONOMIC SYSTEMS FOR RESOURCE ALLOCATION

3. The problem of resource allocation are solved by the economic system at work in a nation. –In the case of construction, resource allocation has been strongly influenced by the public sector. Central government determines: WHAT?What goods and services are produced and what quantity? HOW?How are goods and services produced? WHEN?When are goods and services produced? WHERE?Where are goods and services produced? WHO?Who consumes the goods and services that produced?

4. Economic systems: Two extremes Free market model Centrally planned model Mixed economy model Free market economic system is also called capitalist economy. There is no government involvement and the private ownership is allowed in this system. Price is determined in the market freely by the demand and supply forces. Producers, consumers and resource owners all have complete freedom of choice over the range of products bought and sold. USA is a very good example.

5. Centrally planned economy is also called communism. In this model, there is no private ownership. There is government involvement and no private ownership is allowed in this system. Price is determined in the market by the state. Producers and consumers don’t have any choice over the range of products bought and sold. All of the resources are owned by the state. Cuba is a very good example.

6. Mixed Economy Mixed economic system is a combination of capitalism and communism. There are mixtures of private decision making and the private decisions exist alongside the centralised controls of state legislation and economic plans. UK is a very good examle.

7. 1) Efficiency Efficiency: Resource use is efficient when we produce the goods and services that people value most highly. Efficiency is a concept based on value, and value is based on people ’ s feelings. The concept is divided into two parts: Productive efficiency Allocative efficiency EFFICIENCY, EQUITY and the ENVIRONMENT

8. 2. Equity Equity simply mean equality. Equity relates to fairness and social justice. Equity is also divided into two groups: Horizontal equity Vertical equity

9. 3. Environment Compounding the two way trade-off between efficiency and equity is the environment. The agenda of sustainability has significantly raised its profile. In economics, environmental goods and services are often discussed as a means of highlighting common problems of resource allocation regardless of the system. The explanation relies upon distinguishing between two categories of costs: private costs external costs

10. Draw Fig 2.5 here, page 42 The trade-off between equity, efficiency and the environment