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Questions and Answers
Welfarism prioritizes the collective welfare of society over individual welfare.
Welfarism prioritizes the collective welfare of society over individual welfare.
False
Pareto efficiency is associated with the work of Italian economist Vilfredo Pareto.
Pareto efficiency is associated with the work of Italian economist Vilfredo Pareto.
True
An allocation is considered inefficient if redistributing resources can make at least one individual better off without harming others.
An allocation is considered inefficient if redistributing resources can make at least one individual better off without harming others.
True
Efficiency in consumption means increasing the well-being of at least one consumer without reducing that of others is not possible.
Efficiency in consumption means increasing the well-being of at least one consumer without reducing that of others is not possible.
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Pareto efficiency only requires efficiency in consumption.
Pareto efficiency only requires efficiency in consumption.
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Welfarist theories suggest that aiming for Pareto improvements is both necessary and sufficient for achieving justice.
Welfarist theories suggest that aiming for Pareto improvements is both necessary and sufficient for achieving justice.
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Mainstream economics has primarily focused on normative theories concerning just institutions.
Mainstream economics has primarily focused on normative theories concerning just institutions.
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Efficiency in production means reallocating resources could increase the production of at least one good without affecting others.
Efficiency in production means reallocating resources could increase the production of at least one good without affecting others.
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Consumer surplus is defined as the difference between one's maximum willingness to pay and the actual payment made.
Consumer surplus is defined as the difference between one's maximum willingness to pay and the actual payment made.
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The producer surplus is the aggregate difference between the market price and the maximum price consumers are willing to pay.
The producer surplus is the aggregate difference between the market price and the maximum price consumers are willing to pay.
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Every equilibrium in competitive markets is Pareto-efficient according to the First Theorem of Welfare Economics.
Every equilibrium in competitive markets is Pareto-efficient according to the First Theorem of Welfare Economics.
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The Second Theorem of Welfare Economics suggests that any allocation can be achieved without reallocation of endowments.
The Second Theorem of Welfare Economics suggests that any allocation can be achieved without reallocation of endowments.
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Consumer surplus is calculated using integrals over the demand function.
Consumer surplus is calculated using integrals over the demand function.
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Independence and coercive power are not required for enforcing redistributive policies mentioned in the Second Theorem.
Independence and coercive power are not required for enforcing redistributive policies mentioned in the Second Theorem.
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The theory of revealed preference allows us to infer a person's true preferences from their market behavior.
The theory of revealed preference allows us to infer a person's true preferences from their market behavior.
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Community surplus is the sum of consumer surplus and producer efficiency.
Community surplus is the sum of consumer surplus and producer efficiency.
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Consumer surplus is the difference between the willingness to pay and the price actually paid.
Consumer surplus is the difference between the willingness to pay and the price actually paid.
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The First Theorem of Welfare Economics states that all market equilibria are Pareto-inefficient.
The First Theorem of Welfare Economics states that all market equilibria are Pareto-inefficient.
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Ego depletion refers to the capacity of individuals to make rational financial decisions without influence.
Ego depletion refers to the capacity of individuals to make rational financial decisions without influence.
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Allocatively efficient resource allocation means one individual can be made better off without harming another.
Allocatively efficient resource allocation means one individual can be made better off without harming another.
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The ceteris-paribus condition allows for the analysis of relationships while holding all other relevant variables constant.
The ceteris-paribus condition allows for the analysis of relationships while holding all other relevant variables constant.
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Behavioral biases can lead to a gap between actual preferences and revealed interests.
Behavioral biases can lead to a gap between actual preferences and revealed interests.
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The Second Theorem of Welfare Economics suggests that Pareto-optimal outcomes cannot be achieved through market equilibrium.
The Second Theorem of Welfare Economics suggests that Pareto-optimal outcomes cannot be achieved through market equilibrium.
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Productive efficiency occurs when it is possible to increase the production of one good without decreasing another.
Productive efficiency occurs when it is possible to increase the production of one good without decreasing another.
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Study Notes
Normative Economics and Welfare
- Welfarism prioritizes individual well-being (utility) when evaluating institutions.
- Mainstream economics largely adopts welfaristic theories of just institutions.
- Economists often focus on Pareto efficiency as a minimum criterion, avoiding waste.
- Pareto efficiency ensures an allocation where one person can't be better off without harming another.
Efficiency of Allocation
- An allocation is the distribution of resources among individuals.
- An allocation is inefficient if another allocation can at least make one individual better off without harming another.
- Production efficiency means resources can't be reallocated to increase one good's production without decreasing another good's production.
- Consumption efficiency means goods/services can't be reallocated to improve one consumer's well-being without harming another's.
- Pareto efficiency combines production and consumption efficiency.
Pareto Efficiency vs. Justice
- Pareto efficiency, while necessary, is not sufficient for a just distribution of goods/services.
Welfare Economics Theorems
- First Theorem of Welfare Economics: Competitive market equilibria are Pareto efficient.
- Second Theorem of Welfare Economics: Any Pareto efficient allocation can be achieved through a competitive market with a redistribution of resources.
Market Equilibrium and Consumer/Producer Surplus
- Consumer surplus: The difference between a consumer's willingness to pay and the actual price they pay. It's the area under the demand curve and above the price line.
- Producer surplus: The difference between the price received by a producer and their minimum acceptable price (willingness to sell). It's the area above the supply curve and below the price line.
- Community surplus is the total of consumer and producer surpluses.
Comparative Statics
- Comparative statics analyzes how an equilibrium changes when explanatory variables (such as income) change.
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Description
Explore the principles of normative economics, focusing on welfarism and its implications for individual well-being. Understand concepts of efficiency in allocation, including production and consumption efficiency, as well as the importance of Pareto efficiency. This quiz will challenge your understanding of how these economic theories intersect with issues of justice and resource distribution.
