Chapter 5, Problem 1SPA

To determine

 Identify the role of market price in the allocation of resources.

Explanation of Solution

There are different methods for the allocation of scarce resources.  In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

 In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.