Lecture 3: MFA and Utilitarianism

Question 1

What is the market failure approach?

Answer 1

1. An efficient economy increases general welfare
2. Profit seeking behaviour under perfect market
   conditions leads to an efficient economy
3. Therefore, profit seeking behaviour is good when and because it leads to an efficient economy
4. Profit-seeking that exploits market failure behaviour does not lead to an efficient economy
5. Therefore, managers and business owners ought to maximize profits without exploiting market failures

Question 2

How can you increase profit without exploiting market failures?

Answer 2

Do: product innovation, quality improvement, cost reduction

Don’t: withhold information, produce negative externalities, thwart against regulator efforts

Question 3

What does Heath say about efficiency?

Answer 3

Efficiency is instrumentally and not intrinsically valuable. What matters is satisfying human needs.

Question 4

What is the idea of a perfect market?

Answer 4

1. No transaction costs
2. Symmetric information
3. No externalities
4. No barriers to entry
5. For all goods and services, there are many suppliers and many customers

Question 5

What is consequentialism?

Answer 5

An act is morally required just because it producers the best overall result

Question 6

What is utilitarianism?

Answer 6

Do what maximizes general wellbeing