· Rationing by lottery
o Producer doesn’t gain anything by innovating his industry or producing more apples
o No financial incentives
§ Price System does
· Allocation by need
o Medicare/Medicaid
§ Rizzo’s grandmother had $200,000 in her lifetime and she needed in-home care or a nursing home
§ She did not have Medicare for it
§ Rizzo’s parents spent and hid that $200,000 lavishly
§ Grandma got the Medicaid unfairly
o Amherst College
§ Rizzo and his dad worked hard through college ($26,000 a year) and got no financial aid
§ His roommate, though, had a rich grandpa and got a full ride to Amherst because they put all their money and assets in other names
§ CHEATED THE SYSTEM!
· When you ration not by line or lottery, there are some advantages
o It allows people to decide for themselves how and when they are going to get the good
o Substantial advantages to relying on prices though
o Story
§ Two years ago, Swine Flu hit hard
§ Without enough vaccine for flu season, the CDC had to allocate it via county
§ It was up to the county’s department of health on how to allocate it
§ Monroe County talked to everyone and asked them to rank the people they think should get it the most
§ Email was sent by pediatricians to mention that all the people who were needy should come get it
§ However, this didn’t work at all in other counties
§ Moral of the story: people can not be trusted to state whether they are needy or not
· The beauty of markets:
o You don’t need to depend on the honor system
o Forces prevent you from throwing out a good or giving it to people who don’t need it
· Prices
o Forces you to do a value-cost tradeoff with goods
o Under price system, you are free to buy and use a good however you want
o When there is a low demand in one location, and high demand somewhere else, there will be incentive for anyone who can transport the good from location to another
o If you want to help the poor, the price system is far more far than rationing by lottery or need
· Health Care
o Should it be left to the market?
o Should organ sales be allowed?
o We are arguing about how to do something that is highly efficient, inefficiently.
o Three questions on Health Care:
§ 1) Is it possible in principle to make access to health care independent of wealth, social status, etc.?
§ 2) If it was possible to make Health Care independent of the above factors, how can we do it efficiently?
§ 3) If it’s neither possible or desirable, why do so many people insist on talking about it?
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