Welfareeconomics Efficiencyequity

Efficiency and Equity – Issues of Distributive Justice ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Possible reasons for government intervention ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Positive v Normative economics ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

At General Equilibrium 3 conditions hold: ,[object Object],[object Object],[object Object],[object Object]

Fundamental Theorems of Welfare Economics ,[object Object],[object Object],[object Object],[object Object],[object Object]

The Pareto Criterion ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The Pareto Criterion ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Figure 10.4 Contract Curve a g Both a and g are on the contract curve -- we cannot rank these allocations using the Pareto rule!

[object Object],[object Object],[object Object],[object Object],0 Y e X e Y X

[object Object],0 Y e X e Y X ,[object Object],[object Object],[object Object]

0 Y e X e Y X ,[object Object],[object Object],[object Object]

Compensation & potential Pareto improvements ,[object Object],[object Object],[object Object],[object Object],[object Object]

UPFs and SWFs ,[object Object],[object Object],[object Object],[object Object]

0 A Y X 0 B U B U A Edgeworth Consumption Box Utility possibility curve : derived by moving along the contract curve. a b a b   ,[object Object],[object Object],[object Object]

[object Object],[object Object],0 Y e X e Y X 1 2

[object Object],[object Object],U B U A d 1 2 ,[object Object], ,[object Object],[object Object],[object Object],[object Object],g   e f  b 1 a 1 b 2 a 2

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],U B U A 2 1 But the UPC’s can intersect...  e f    d g ,[object Object]

U B U A The Utility Frontier ,[object Object],[object Object],[object Object],The movement from a to b represents a change in the two individuals’ utilities + a reallocation of resources with the output mix changing  b  a

Figure 10.9a Welfare Maximization UPF c a b (a) Jane ’ s utility W 1 W 2 W 3 Denise’s utility Isowelfare curves: (similar to individual indifference curves) summarise all the allocations with identical levels of welfare. Their shape reflect different views of society about distribution UPF: derived by moving along the contract curve. Ordinal utility, so we cannot say how much  the curve slopes downwards but not at a definite rate

Figure 10.9a Welfare maximization UPF c a (a) Jane ’ s utility W 1 W 2 Denise’s utility Y Assuming it is possible to construct this type of functions, this representation nicely illustrates the conflict between efficiency and equity X

Different approaches to distributive justice ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Welfareeconomics Efficiencyequity

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Welfareeconomics Efficiencyequity