Chapter 2

ECONOMIC SYSTEMS FOR

RESOURCE ALLOCATION

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

and what quantity?

are

produced

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?

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.

 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 dont 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.

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.

EFFICIENCY, EQUITY and the

ENVIRONMENT
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 peoples feelings. The
concept is divided into two parts:

Productive efficiency

Allocative efficiency

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

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

Draw Fig 2.5 here, page 42

The trade-off between equity, efficiency
and the environment