Test 2 Chap 8,12,14

Question 1

An equation stating that social welfare depends on some function of the individual utilities of the people in the society

Answer 1

The utilitarian Social welfare function

Question 2

Additive social welfare function

Answer 2

Defines social welfare as the sum of all the individuals utilities. The assumptions are: Individuals have the same utility functions, the utility functions are based on diminishing marginal utility of income, total income is fixed

Question 3

States that the social welfare in a society depends on the utility of the individual who has the lowest utility in the society

Answer 3

The Maximin Criterion

Question 4

The return to owners of a firm above the opportunity costs of all the factors used in production.

Answer 4

Economic profits

Question 5

The Hicks-Kaldor Criterion

Answer 5

A project should be undertaken if it has a positive net value regardless of the distributional consequences

Question 6

Consumer surplus

Answer 6

The area under the demand curve but above a horizontal line at market price