Teaching Guide: Efficiency vs. Equity

After completing this lesson, you will be able to:

Learning Objectives

After completing this lesson, you will be able to:

  • Compare and contrast efficiency and equity
  • Give examples of efficiency improvements and equity improvements

A large portion of economic analysis is focused on efficient production and allocation, but not much in the way of what would be considered equitable distributions. These are often two different goals and policies that improve one often come at the cost of the other. We need to consider, however, how much efficiency society is willing to give up in order to improve equity.

In the scene below, Jonah is working in the pharmacy to help Tate administer flu shots. We see a very long line of sick individuals who are all hoping they’ll be vaccinated that day. It turns out though, that there is only one vaccine left in the store, and Jonah has to decide who gets their shot that day. He even makes sure to let everyone know that it should go to the person who “needs it the most,” but the people in line won’t be able to agree on who that person should be.

Efficiency

Economics is the study of the allocation of scarce resources. In this scene, our scarce resource is the remaining vaccine, and Jonah has to decide the appropriate allocation mechanism.

Divide a white board or overhead board in half and label one half with “Efficient Allocation” and the other half with “Equitable Allocation.” Using post-it notes, have students come up with one efficient allocation for distributing the remaining vaccine and one equitable solution.

One efficient method for allocating the last shot is the auction the vaccine to the highest bidder. This would ensure that the person with the highest willingness to pay receives the shot that day. An equitable distribution may be based on who can least afford to show up tomorrow.

Crafting Policy Around Efficiency and Equity

Invite students in the class to contribute $1 for the opportunity to walk away with $10. Be sure that your students are willing participants and that they are aware there is no guarantee they’ll get their $1 back. This activity works best if you’re able to get $10 people to contribute.

Each student who participates will contribute $1 to a “class fund” where the sum of contributions will be given to a single class member (it doesn’t have to be one who contributes). Select 3 students to jointly and unanimously determine who will receive that fund. The recipient does not have to share that money with anyone else and the group can determine that allocation based on whatever criteria they decide — except for chance.

Discussions will usually focus on questions of which class mate deserves it the most, who has the least amount of money, who is he hardest worker, or what the recipient will do with the money. Class-wide discussion can be directed on how poverty-alleviate programs must decide similar criteria using taxes.

This experiment was part of a newsletter that is no longer in production called Classroom Expernomics.