Topic2 Flashcards
What is the focus of liberalism in economics?
Liberalism focuses on individual rights and freedom, with minimal government role in redistribution. It supports private property, market access, public goods provision, and correction of market failures, including environmental policies.
What is utilitarianism?
Utilitarianism emphasizes individual utility, welfare, and happiness. Social welfare is a function of individual utilities, and the government should maximize social welfare.
What does the individual utility function represent?
The utility function maps states of the world (expressed as individual consumption) into a single utility value. Assumptions include positive slope and decreasing marginal utility.
What is Pareto-efficiency?
Pareto-efficiency is when no individual can be made better off without making another individual worse off. A policy is Pareto-improving if it increases one person’s utility without reducing another’s.
What does social welfare maximization entail?
It involves deriving aggregate utility from individuals. Under equal weights and identical utility functions, equal consumption levels maximize social welfare.
How does discounting affect intertemporal welfare?
Discounting reduces the importance of future welfare. Higher discount rates (ρ) make the future less significant, while debates exist over using ρ = 0 for ethical fairness across generations.
What is the Rawlsian concept of fairness?
Rawlsian fairness requires a fair distribution decided under a ‘veil of ignorance’, ensuring fundamental freedoms and minimizing distributional inequalities.
What are market failures in environmental economics?
Market failures occur when markets do not account for external effects, such as ecological functions or resource exhaustion. Causes include incomplete competition and unclear property rights.
What is the role of correction mechanisms?
Correction mechanisms include policy interventions and voluntary actions. However, policies may fail due to political imperfections, and voluntary actions are often insufficient without incentives.
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What is the relationship between CO2 emissions and GDP?
Reducing fossil fuel emissions while income rises requires a significant increase in fuel prices due to the relationship Q = Y/P, where Q is fossil fuel use, Y is income, and P is fuel price.
