Unit 5: Property and Power

Question 1

Institutions

Answer 1

determine who can do what and how payoffs are distributed

may set the terms of exchange

may impose or threaten heavy costs unless the other part acts in a way that benefits the person with power

Question 2

Pareto efficiency

Answer 2

an outcome is Pareto efficient is nobody can be better off without making somebody worse off

completely unrelated to fairness

Question 3

John Rawls’ Veil of Ignorance

Answer 3

1. Fairness applies to all people
   - if we swapped allocations, we would still apply the same standard of justice to evaluate outcome
   - imagine we don’t know our position in society when evaluating an outcome
2. Make judgement behind this veil of ignorance
   - imagine you have an equal chance of receiving any of the payoffs of the allocation

Question 4

To maximise profits

Answer 4

point where MRS=MRT

i.e biggest distance between costs and income

Question 5

Lorenz curve

Answer 5

shows the extent of inequality and allows a comparison of distributions

e.g. cumulative share of land vs cumulative share of population from least to most land owned

Question 6

Gini coefficient

Answer 6

measures inequality

see graph for how to calculate

Question 7

Addressing inequality

Answer 7

gov policies that redistribute income can result in a more equal distribution of disposable income

income tax and transfers (like benefits) are examples of redistributive taxes

Question 8

Operation Barga

Answer 8

land distribution in West Bengal was highly unequal

farmers worked the land and had to give half their crop to land owners

land reform gave more power to farmers:

can’t be evicted
kept greater share of crop
outcome not Pareto efficient

but it decreased income inequality, increased motivation and productivity