Question

Suppose two passengers end up with a reservation for the last seat on a train from San Francisco to Los Angeles. Two alternatives are proposed:

• Toss a coin
• Sell to the highest bidder

Compare the 2 options in terms of efficiency or equity.

Answer 1

Ans:-

If we think of efficiency, then it will be better to sell the seat to the highest bidder because the passenger for whom the seat has the greatest value will bid the highest amount, where as tossing coin will allocate seat randomly. Again, when we think about equity, tossing a coin is a better option because by tossing a coin passengers will have an equal chance of obtaining the seat.