Unit 5: Property & Power Flashcards
What are institutions?
The formal and informal rules that structure social and economic interactions.
What is power in economics?
The ability to get what you want in opposition to others’ intentions.
What is bargaining power?
The advantage one party has in securing a greater share of economic surplus.
What does Pareto efficiency mean?
An allocation where no one can be made better off without making someone else worse off.
What is the Pareto criterion?
Outcome A dominates B if someone is better off in A and no one is worse off.
What is fairness in economic outcomes?
A judgement based on either the outcome or the process that led to it.
Why is fairness different from efficiency?
An outcome can be efficient but still unfair.
What is an economic rent?
The benefit someone receives over and above their next best alternative.
Who are Angela and Bruno in Unit 5?
Angela is a farmer; Bruno is a landowner who may exert control.
What happens if Angela owns the land?
She keeps all the output she produces.
What happens if Bruno uses force?
He forces Angela to work and takes a share of the output.
What is the biological survival constraint (BSC)?
The minimum amount Angela must consume to survive.
What is the technically feasible set (TFS)?
The set of output distributions that are technically and biologically possible.
When does Bruno choose the optimal allocation?
When the slope of the BSC equals the slope of the feasible frontier.
What is a feasible frontier?
The boundary of maximum output Angela can achieve based on her effort.
How can democratic institutions change outcomes?
They give Angela power to change the rules (e.g., via voting).
Is a Pareto efficient allocation always fair?
No, it may be highly unequal.
Why is the ultimatum game relevant in this unit?
It shows how bargaining power affects outcome and perceptions of fairness.
What is an example of coercion in economics?
Bruno forcing Angela to work under threat.
What are two key criteria to evaluate institutions?
Efficiency and fairness.
