markets and inequality

Question 1

Different views of the market system – causes of inequality matter:

Answer 1

1. Markets exploit gains from trade and give people freedom
   * might mean accepting inequalities that arise
2. Markets are inherently unequal because they accentuate underlying
   inequalities in talent/social background/property rights
   * role for government intervention

Question 2

Is income the same as welfare?

Answer 2

• Income is generally easier to measure
• …but our core theories are about utility not income
• We may wish to redistribute income in order to redistribute well-being

Question 3

Benefits of using income in data (2 characteristics)

Answer 3

Cardinal and comparable

Question 4

To be able to write down a social welfare function it is necessary for utility to
be

Answer 4

both cardinal and interpersonally comparable.