GENERAL EQUILIBRIUM & THE

EFFICIENCY OF PERFECT
COMPETITION

CHPATER 12
Problem 10

Suppose two passengers end up with a reservation for the

last seat on a train from San Francisco to Los Angeles. Two
alternatives are proposed:
a) Toss a coin
b) Sell the ticket to the highest bidder
Compare the two options from the standpoint of efficiency
and equity.

CHPATER 12
Terminologies

Efficiency: In economics, allocative efficiency. An efficient

economy is one that produces what people want at the
least possible cost.
Equity: Fairness particularly in regard to taxation or welfare
economics. More specifically, it may refer to
equal life chances regardless of identity, to provide all
citizens with a basic and equal minimum of income, goods,
and services or to increase funds and commitment for
redistribution