Topic 2: Utilitarianism Flashcards
Define wealth
The market value of a persons assets at any moment in time
What is the market value
how much people are willing to pay
what is income
How wealth changes over time
when is the simplifying assumption used
when looking at the wealth of individuals
why is the simplifying assumption used
makes analysis easier (avoids being made more complex by human behaviour and society)
what is utilitarianism
an ethical principle that puts human happiness as central to life and what policy makers should try and achieve
adopted by many economists particularly when advising policy decisions or considering individual choice
what is utility
an attempt to measure happiness or satisfaction
what are the two types to utilitarianism
value theory
theory of right action
what is value theory
explains what matters
as microeconomists this is individual happiness
what is theory of right action
explains what people should do to maximise level of individual happiness
what is constrained optimisation
when people act to maximise their happiness but face limits, or constraints on what they can do
what is the Pareto Criterion
asks if any change would impose harm on anybody, if it does it cannot be imposed on people
what is the feasible set
how much of different goods and services could possibly buy
what is a budget
the constrained amount of items you can afford with the amount of income available
how is a change in income shown on the budget line
parallel shift of the budget line
However the slope stays the same as long as the price of goods is the same
