Property and Power (unit 5) Flashcards
Institutions
written and unwritten rules that govern how people interact, and how the economic rents (or surplus) are
distributed
how do property owners have power?
Set the terms of the exchange (i.e. they make a take it-or-leave-it offer like the Proposer in an Ultimatum
game)
Bargain with multiple workers (i.e. when there is competition among responders to accept low offers)
Impose or threaten to impose costs on others (i.e. they can terminate the contract)
pareto efficiency
no individual or group can be made better off without making someone else worse off.
pareto improvement
a change from some
initial allocation of goods makes at least one person better off and
nobody else worse off
difference between pareto efficiency and fairness
pareto efficiency is objectively determined but fairness is subjective and based on substantive and/or procedural assessment
biological survival constraint
limitations imposed by biological needs (such as food, water, shelter, and energy) that must be met to survive and function effectively.
economic rent
represents earnings above the opportunity cost
private property
the right to use and exclude others
from the use of something, as well as the right to sell it or its rights
key difference between MRT and MRS in an example
MRT: The amount of grain that MUST be sacrificed for an additional hour of free time (Increases with free time)
MRS: The amount of grain that Angela is WILLING to sacrifice in order to meet her survival needs (Decreases with free time)
technically feasible set (under coercion)
This refers to all outcomes that are physically or technologically possible, given available resources and production capabilities. It does not consider costs, prices, or willingness to trade
economically feasible set (under voluntary exchange)
refers to all outcomes that are possible, given available resources and production capabilities and the worker’s willingness to exchange resources.
reservation indifference curve
reservation indifference
curve (RIC) represents allocations
that someone values the same as their reservation option
how is allocation chosen under coercion
Under coercion, the allocation chosen is where the slope
of the biological constraint
feasible frontier
how is allocation chosen under voluntary exchange
joint surplus is maximized where the
slope of the reservation indifference curve equals the slope of the feasible frontier
what happens to total surplus when both parties have to agree to the proposal?
It is lower (because you are working with an economically feasible set rather than a technically feasible one)
factors in preferences of thw worker that provide same utility as reservation option
when is a pareto improvement possible in this model?
Whenever MRT ≠ MRS, a Pareto
improvement can be achieved at a
different level of production (when MRS=MRT, the greatest level of surplus is created)
substantive justice
Focuses on the fairness of the final outcome of a decision-making process (e.g If two people commit the same crime, they should receive equal punishment under the law)
procedural justice
Focuses on the fairness of the process used to make decisions (e.g Even if someone is guilty, they must receive a fair trial)
