The For Whom? question of allocation arises because society faces the fundamental problem of scarcity--wants and needs are unlimited, but resources are limited. Because society lacks sufficient resources to produce every good that every person desires, society must decide who receives the goods and services produced. Does society give all goods to benevolent economic instructors? Does it distribute production according to shoe size (with larger feet receiving more goods)? Does it let people with more income buy more production?
The two primary methods used to answer the For Whom? question are markets and government. Markets employ voluntary exchanges among buyers and sellers. Governments make use of laws, rules, and regulations that are involuntarily imposed on members of society.
MarketsMarkets address the For Whom? question by allowing people with more income to purchase more production. Those who can afford to buy goods are the ones who receive the goods. But people have more income if they own and control resources that are more highly valued by society.
Suppose, for example, that Dr. Dowrimple T. Bedside, a skilled medical doctor, is planning to purchase a new residential domicile. Dan Dreiling, a skilled drywall installer, is also in the market for a new house. Both have their eyes on a well-maintained, nicely landscaped, four-bedroom structure conveniently located near shopping and school.
Although both Dr. Bedside and Dan Dreiling are skilled in their chosen professions, society places a higher value on the work performed by Dr. Bedside. While an hour's worth of drywall installation pays Dan Dreiling in the neighborhood of $30, and hour's worth of medical practioning pays Dr. Bedside a more lucrative $300. The end result is that Dr. Bedside has more income and a greater ability to purchase the house.
How does this illustrate resource allocation and the For Whom? question. The higher price paid for Dr. Bedside's labor means he has a greater ability to purchase goods. In fact, with ten times the income, Dr. Bedside can purchase ten times the amount of production as Dan Dreiling.
GovernmentGovernments address the For Whom? question by dictating who receives production and who does not. This can be accomplished either directly through legal mandates (laws, rules, and regulations) or indirectly through the collection and spending of tax revenues.
Suppose, for example, that the government of Northwest Queoldiolia, a quaint and courteous country, decides that left-handed people should have higher living standards and receive a larger share of the nation's production.
One way to achieve this goal is to pass a law stipulating that for the same price, left-handed people receive ten percent more goods and services than right-handed people. For example, a left-handed person would receive a large pizza for the price of a medium, while a right-handed person would receive a medium pizza for the price of a medium. Any seller violating this edict would be subject to criminal prosecution, jail time, and a hefty fine.
How does this address the For Whom? question? In all likelihood, sellers will seek to avoid punishment by giving left-handed people more output at the same price. The end result is that left-hand people will be better off and be able to consume more goods and services.
Alternatively, the government of Northwest Queoldiolia could place a tax on right-handed people, then give the resulting revenue to left-handed people. How does this address the For Whom? question? Prompted by this income redistribution program, left-handed people would have more income that could be used to purchase goods and services, while right-handed people would have less.
FOR WHOM?, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: May 27, 2018].