2 - Foundations of welfare and distributional analysis

Question 1

Explain:

1) Individuals
2) Human interactions
3) government / public authority

as outline of the basic framework

Answer 1

Question 2

Explain Marginal Rate of Substitution (MRS)

Answer 2

Question 3

Explain Indifference Curve and its relationship with MRS

Answer 3

Question 4

Explain budget constraint and the interpretation of the slope of budget constraint

Answer 4

Question 5

Explain:

1) Compensating Variation (CV)
2) Equivalent Variation (EV)
3) Change in consumer’s surplus (CS)

Answer 5

Question 6

If there are no income effects, what are the relationship between CV, EV, CS?

Answer 6

Question 7

Explain market equilibrium, consumer surplus and producer surplus

Answer 7

Question 8

**Important example

Answer 8

Question 9

**Explain House Price Capitalisation Approach

Answer 9

Question 10

Important assumptions for the First Fundamental Theorem of Welfare Economics

Answer 10

Question 11

Voltaire’s Pangloss and the FFWTE

Answer 11

Question 12

The “Panglossian” Proof of the FFWTE

Answer 12

Any Pareto improvements must be infeasible.

Question 13

Explain fairness vs efficiency

Answer 13

Question 14

Graph a contract curve showing distribution vs pareto efficiency

Answer 14

Question 15

Explain how the second fundamental theorem of welfare economics can address efficiency and equity separately

Answer 15

Question 16

Draw social welfare function (SWF) with utility possibility curve (UPC)

Answer 16

Social Welfare Function (SWF):

W=f(Ua, Ub)

Question 17

1) Features of Social Welfare Function (SWF)
2) Utilitarian SWF vs Rawlsian SWF

Answer 17

Question 18

Explain Kaldor-Hicks Efficiency

Answer 18

Question 19

Explain irrational behavior and welfare

Answer 19