Unit 5

Question 1

What are institutions?

Answer 1

These are written and unwritten rules that govern how people interact in joint projects and how the products are distributed. They include:

1. Constraints
2. Incentives

Question 2

What two forms can bargaining power take?

Answer 2

1. Setting the terms of exchange

2. Impose or threaten to impose a cost on the other

Question 3

What is an allocation?

Answer 3

This is the outcome of an economic outcome. It describes each persons contribution to the project, the product of the project, the way the product will be distributed.

Question 4

When is an outcome considered pareto efficient?

Answer 4

When it’s impossible to make someone better off without making another person worse off

Question 5

Why isn’t efficiency good enough to evaluate an outcome?

Answer 5

An outcome may be pareto efficient but may be judged as unfair.

Question 6

What are the two judgements of fairness?

Answer 6

1. Substantive judgements- The actual outcome itself, i.e. income, happiness, etc.
2. Procural judgements- How the the outcome came to be.
   - Voluntary exchange of property acquired through legitimate means
   - Equal opportunity for economic advantage
   - Deservingness of individuals

Question 7

What was John Rawl’s method of evaluating fairness

Answer 7

1. Recognize that fairness applies to all
2. Stand behind a veil of ignorance
3. Make a judgement about fairness from that veil

Question 8

What is a technically feasible set?

Answer 8

The outcomes that are possible within the technological and biological limits

Question 9

What is the biological survival constraint?

Answer 9

The minimum amount that is required to survive

Question 10

What is the MRT?

Answer 10

The amount of grain that is sacrificed for an additional hour of free time

Question 11

What is the MRS?

Answer 11

The amount of grain(survival constraint) that’s willing to be sacrificed for an additional hour of free time

Question 12

Where is the difference between them maximised?

Answer 12

Where they are equal

Question 13

What is private property?

Answer 13

The right to use something and exclude others from it’s use as well as the right to sell it

Question 14

What is a joint surplus?

Answer 14

The sum of economic rents

Question 15

What is power?

Answer 15

This is the ability of an individual to do and get the things that they want in opposition to the intentions of others

Question 16

What is bargaining power?

Answer 16

The extent of an individuals advantage in securing a larger share of the economic rents made possible by an interaction

Question 17

What are the three scenarios for Bruno and Angela and what are their outcomes?

Answer 17

Scenario 1:Angela works on the land alone and her choice of work will be at 8 hours
Scenario2:Bruno now owns the land and he forces Angela to pay, work will be at 11 hours
Scenario3: Bruno owns the land but there is a law that allows Angela to refuse or take the offer. The work is 8 hours

Question 18

What is the difference between the technically feasible set and the economically feasible set?

Answer 18

The technically feasible set only takes technology and biology into account, while the economical one also takes into account Angela’s reservation option and all points on it where she’d be indifferent

Question 19

What is the difference between the outcomes from coercion and the outcomes from bargaining?

Answer 19

• The joint surplus is lower

- Points where MRT = MRS are different

Question 20

What is the difference between the outcomes from self sufficiency and the take it or leave it?

Answer 20

The surplus is 4.5 in both cases, but in Self sufficiency Angela gets all of it, and with Bargaining Bruno gets all of it

Question 21

How can an exploited group improve their economic lot?

Answer 21

They can do it via politics, i.e laws on the hours worked and on minimum work.

Question 22

Why doesn’t Angela get any part of the surplus?

Answer 22

She is on her reservation indifference curve