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EC2A3 > 3. Who gets what from the market system? > Flashcards

3. Who gets what from the market system? Flashcards

1
Q

Positive economics

A
  • Identifies logical outcomes that follow from a set of underlying assumptions
  • Nothing subjective/ No value judgments
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2
Q

Normative economics

A
  • Involves comparing different outcomes and trying to reach a value judgment as to which is preferable = welfare economics
  • What we** SHOULD** do?
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3
Q

Welfare economics

A
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4
Q

From preferences to decisions
* What is social choice rule

A

*

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5
Q

Contract curve

A
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6
Q

Utility Possibility Frontier (UPF)

A
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7
Q

From Contract curve to UPF
Ordinal assumption

A

*

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8
Q

Utility Possibilites set

A
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9
Q

Pareto Criterion

A

A social outcome X’ is Pareto superior to X if no-one finds X’ worse than X and at least one perso finds it strictly worse
* One way to make incremental policy changes until there is no further eay to improve the outcome of at least one member of society without making someojne worse off - hence Pareto Efficient outcome
* Avoiding normative debate

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10
Q
A
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11
Q
A
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12
Q
A
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13
Q

Social choice rules

A
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14
Q

UPID

A
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15
Q

Compensation and potential Pareto improvement
Hicks-Kaldor therom

A
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16
Q

The Pareto criterion appears reasonable but:

A
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17
Q

Arrows impossibility theorm

A
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18
Q

Condorcet cycle

A

No one is happy with the outcome of a vote

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19
Q

Pairwise comparision

A
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20
Q

What does SCR lead to?

A

.

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21
Q

Arrow (Economist)

A
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22
Q

How does Majority voting lead to transitive social ordering?

A
23
Q

Single peaked preferences

A
24
Q

Is this vote transitive?

A
25
Q

Nicholas de Condorcet

A
26
Q

Take away message
- Arrows theorm
- UPID

A
27
Q

Bergson-Samuelson
Welfarist approach

A
28
Q
A
29
Q

Iso-welfare curve

A
30
Q

Social welfare optimisation

A
31
Q

What is the Utalitarian theory?

A
32
Q

What is the slope of the Iso-welfare curves under Utalitrian

A
33
Q

Utalitarian social welfare outcome

A
34
Q

Theories of distributive justice:
Ralwsian
Market-based approach

A
35
Q

Ralwsian social optimum
* Veil of ignorance

A

.

36
Q

Ordinal and cardinal utility

A
37
Q

Ordinal and cardinal comparability

A
38
Q

Weighted sum of utilities

A
39
Q

How social welfare changes policy interventions?

A
  • Policy intervention is one of the reasons for having a metric for social welfare, as we are able to rank outcomes
40
Q

Relating social welfare changes to policy interventions:
Pareto criterion

A

This is not very helpful, as there are unlikely to be losers while the 2 policy choices have different winners

41
Q

Relating social welfare changes to policy interventions:
Biggest increase in income
* Is income the same as utility?
* Does income lead to a focus on who is worse off?

A
  • Income is not the same as utility. There may be marginal utility for someone who consumes less.
  • Care about utility not ethical judgments. Income does not necessarily elad to a focus to who is worse off.
42
Q

Relating social welfare changes to policy interventions:
Biggest increase in social welfare
*Welfare weight

A

We could introduce a welfare weight that is higher for poor people.
The policy that raises social welfare the most need not be the one that raises income the most.

43
Q

(Backhouse, Baujard and Nishizawa 2020)
What is welfare economics?

A
  • Formulating recommendations that would make everyone better off
  • If a change doesn’t make anyone better off then social welfare (how well-off is society?) cannot increase
  • When coming up with solutions, economists come up with more solutions than just welfarism.
  • Welfarism: Social welfare depends soley on well-being
  • Inter-personal utility comparison: Utilitarianism
  • Paretian welfare economics: Required as inputs more than ordinal utilities or preferences
44
Q

(Backhouse, Baujard and Nishizawa 2020)
What is welfarism? Can you explain through an example?

A
  • Claim that social welfare depends only on the welfare of individuals in the society being considered but does not need to consider how individual welfare is defined
  • Focus on subjective ordinal, individual utilities
45
Q

(Backhouse, Baujard and Nishizawa 2020)
How does non-welfarism (of which there are many approaches) differ from welfarism?

A
  • Acknowledging issues other than utility
  • such as fairness, equity, solidarity and distributional concerns
  • Acknowledge that skills are unequally distributed so those with disabilities need to be compensated
46
Q

(Backhouse, Baujard and Nishizawa 2020)
How did Amartya Sen (in his work in 1979) describe welfarism and why did he argue it was restrictive?

A
  • Welfarism is essentially an informational constraint for moral jusgment about states of affairs
  • Doesn’t consider how individual welfare is defined
47
Q

(Backhouse, Baujard and Nishizawa 2020)
Why has welfarism been argued to be unidimensional (no depth)?

A
  • Focus on ordinal utilities
  • Refusal to make interpersonal utility comparisions limits the extent to which it can be used for policy recommendations
  • Difficulty in gathering information about utilities
  • Non-welfarist evaluations examples: HDI
48
Q

(Backhouse, Baujard and Nishizawa 2020)
Should we restrict our attention to economic welfare? What else might matter?

A

Part of social welfare that is related to money
* Many utalitarians (E.g. Philosphical radiclas) focus on the production and consumpiton of material goods and services
* Romantic critics, e.g. John Ruskin argues that we should look at life holistically (E.g. social affection and justice) as a criterion for distributing we
* Other values like freedom and distributive issues matter aswell
* Samuelson: Pareto criterion does not focus on income distribution
* Siato: Pareto efficent judgments should be ignored when they conflict with legal rights (E.g. Child trafficking)

49
Q

(Backhouse, Baujard and Nishizawa 2020)
Welfarism points to individual utility counting in assessments of social welfare. Does that mean collective values (in ‘the public interest’) have no significance for welfare economics? What did Vilfredo Pareto think?

A
  • As a result, collective values have no intrinsic significance
  • Arena: argues that Walras believed there was a society and influenced individuals in a way that cannot be analysed as an aggregate on individuals
  • Vilfredo Pareto saw that people acted in response to others. He also saw that there were 2 maximums, in which one would be a maximum for a community (Pareto-criterion is satisfied) and the other would be a maximum of community in which maximisation is not constrained by the requirement that no one is made worse off, and the utilities of different individuals are weighted
  • Musgrave: Collective approach to the provision of merit goods
50
Q

(Backhouse, Baujard and Nishizawa 2020) Give some examples of normative values that economists have considered when analysing the welfare effects of policy decisions

A
  • Welfarist: Pareto criterion
  • Ruskin: Importance of the environment
  • Hobson: Equal opportunity and non-discrimination
  • Pigou: Provision of primary goods or needs to everyone and a fair distribution of resources
  • Political and social context determines what are the normative values (E.g. In the industrial era, the want for productivity meant that they had treated the working class in a manner they would not now)
  • Income distribution
  • Merit goods as people may not realise the benefits
  • Musgrave: People are interdependent, therefore cannot measure through individualism
51
Q

(Backhouse, Baujard and Nishizawa 2020) What is a ‘merit good’?

A

Musgrave: A good that needs to be provided in society, in which there are social interactions and unavoidable externalitities
Maybe people do not realise the benefits of such goods
(E.g. Public goods )

52
Q

What therom states that an improvement is when there should be compensation for loosers and still remain better off?

A

Hicks-Kaldor therom

53
Q

What happens if the marginal utility of the social welfare function are positive?

A

Gains from welfare are increasing but at a decreasing rate so iso-welfare curves must be downward sloping

EC2A3 (10 decks)

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