Reference no: EM131102035

Question: discuss the cost of making collective decisions in large and small groups. What do these costs have to do with the viability of large and small groups? (Steve)

A group's size is a factor in the costs to the group in decision-making. A collective action more directly affects each player within a small group because each group member is able to note whether the few other members are working toward the decided goal or shirking. Within a large group, each member represents a smaller percentage of the workforce, so any member could conclude that his or her contribution means little to achieving the group consensus.

The costs that each group can incur varies due to its size. A small group must be aware of the social detriment between the members that can occur due to continually needing to monitor each other's actions or interactions. These enforcements can be seen as a low cost because the group is small and expected to self-police.

A larger group faces the challenge of cost of group members attempting to organize all the members, even if the only real challenge is getting the members to meet at the time the majority of members can meet. Another cost may be having some members wait for more prominent decision-makers within the group to do the collective deciding. These members' rationale is that the group is so big that as an entity, no one will notice them being "free-riders."

Group viability can be affected by these costs, in particular, those situations where there are many members but little participation by some members. Reduced motivation may mean that members of large groups do little other than show up regularly; in this manner, although the members engage one another, the less active ones do not put forth enough action that should be benefitting the group's common interest.

For the smaller groups, the common interest goals can be enforced harshly if not followed precisely. The nineteenth century cattlemen's scenario reveals that if one member does not follow his or her duties precisely, that member could be subject to losing his property as a punishment or penalty for not safeguarding the groups assets.

Price ceiling

Price Ceilings are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them. Price ceilings only become a problem when they are set below the market equilibrium price.

When the ceiling is set below the market price, there will be excess demand or a supply shortage. Producers won't produce as much at the lower price, while consumers will demand more because the goods are cheaper. Demand will outstrip supply, so there will be a lot of people who want to buy at this lower price but can't. Still, if the demand curve is relatively elastic, then the net effect to consumer surplus will be positive. Producers are truly harmed, as their surplus is doubly hit with a reduction in the number of firms willing to take that lower price, and those who remain in the market have to take a lower price.

The resulting shortage of goods can lead to consumers having to queue up in line to get the good, government rationing, and even the development of a black market dealing with the scarce goods. This is what occurred with the energy crisis in America during the 1970s, when cars had to line up on the street in order to just get some government rationed amount of gasoline.