unit 5

Question 1

institutions

Answer 1

written and unwritten rules that govern: what people do when they interact in a joint project and the distribution of the products of their joint effort.
in other words institutions determine who can do what and how payoffs are distributed

Question 2

power

Answer 2

the ability to do and get the things we want in opposition to the intentions of others

Question 3

bargaining power

Answer 3

the extent to which a person can secure an advantage based on their interest in an interaction

Question 4

allocation

Answer 4

outcome of an economic interaction / A description of who does what, the consequences of their actions, and who gets what as a result.

Question 5

pareto criterion

Answer 5

According to the Pareto criterion, a desirable attribute of an allocation is that it be Pareto-efficient

Question 6

Pareto-dominates

Answer 6

Allocation A Pareto-dominates allocation B if at least one party would be better off with A than B, and nobody would be worse off.

Question 7

pareto efficiency

Answer 7

allocation where nobody can be made better off without making someone else worse off. An allocation that is not Pareto-dominated by any other allocation

Question 8

substantive judgements of fairness

Answer 8

Judgements based on the characteristics of the allocation itself, not how it was determined. is it a fair combination of x and y? how equal is the allocation?

Question 9

procedural judgements of fairness

Answer 9

an evaluation of an outcome based on how the allocation came about, and not on the characteristics of the outcome itself. i.e. what led us to the allocation and was the regulation fair that led us into the allocation eg was it by forcce or by competition

Question 10

substantive judgements are based on inequality in some aspect of the allocation such as:

Answer 10

1- income eg unfairness in income due to inequality in gender
2-happiness- as incomes increase people seem to be happier
3-freedom

Question 11

procedural judgements evaluated as aspects of:

Answer 11

1-deservingness - did the rules of the game which made the allocation take place reflect how hard an individual worked?
2-did people have equal opportunity to acquire a larger share of the total pie to be divided up
3-were the actions resulting in the allocation the result of freely chosen actions

Question 12

technically feasible

Answer 12

an allocation within the limits set by biology and technology

Question 13

biologically feasible

Answer 13

An allocation that is capable of sustaining the survival of those involved is biologically feasible.

Question 14

reservation option (indifference )curve

Answer 14

a curve that indicates allocations (combinations) that are as highly valued as one’s reservation option.

Question 15

reservation option

Answer 15

A person’s next best alternative among all options in a particular transaction.

Question 16

pareto improvement

Answer 16

a change that benefits at least one person without making anyone else worse off

Question 17

pareto efficiency curve

Answer 17

The set of all allocations that are Pareto efficient. joins together all the points in the feasible set for which MRS=MRT

Question 18

what forms does power take

Answer 18

1- it may set the terms of exchange by making a take-it-or-leave-it offer eg not negotiating on a salary
2- it may impose or threaten to impose heavy costs eg gov may impose a penalty on firms who carry on polluting

Question 19

when does the proposer have more bargaining power

Answer 19

when they make a take-it-or-leave-it offer or when there are two responders as the power to refuse is weaker

Question 20

why is proposer power limited

Answer 20

because responder can refuse

Question 21

example of proposer responder

Answer 21

employer and employee where owners propose a wage and other terms of employment and the worker can choose to accept

Question 22

what does pareto-efficiency have nothing to do with

Answer 22

fairness

Question 23

pareto gain

Answer 23

moving from one allocation to another without making either player worse off

Question 24

veil of ignorance

Answer 24

putting yourself in the shoes of others so you can evaluate the constitutions, laws and other institutions of a society as an impartial outsider

Question 25

what happens to IC if value free time more than grain

Answer 25

steeper IC

Question 26

when IC is flatter

Answer 26

has more free time so values it less

Question 27

biological survival constraint

Answer 27

the minimum amount of grain needed for each amount of work done

Question 28

gains from exchange

Answer 28

the benefits each party gains from a transaction compared to how they would have fared without the exchange

Question 29

when angela consumes more what happens to her mRS

Answer 29

it does not change

Question 30

why can pareto-efficnet allocationsbe uneqault

Answer 30

when outcomes area resultfrom differences in bargaining power due to differences in endowments

Question 31

lorenz curve

Answer 31

graphical representation of inequality by comparing distributions of wealth or income. x axis cumulative share of lowest to highest income. on y axis it is cumulative share of income

Question 32

gini coefficient

Answer 32

calculated from lorenz curve, 0 = perfect equality and 1 means maximalinequality

Question 33

pros and cons of gini

Answer 33

1- can compare differencet distributions by comparing diff areas on lorenz curves
cons-need to be calcualted from lorenz curve so lots of data needed - can’t tell us about people ithin the distribution

Question 34

market income

Answer 34

income fromwages, salries, self-employment etc

Question 35

when do redistributive polices have greater effect

Answer 35

towards the bottom of the distribution

Question 36

rawlsian welfare function

Answer 36

the social welfare of an allocation depends only on the welfare pf the worst off individual so welfare total = min of utilities