Welfare Flashcards
Whats the difference between communism and socialism?
Communism is where the gov owns most of the FOP, allocates resources and determines what products are provided. Socialism is similar but non essential organisations remain privately owned whereas monopolies are nationalised.
What is pareto efficiency?
Whereby one person cant be made better off without making another person worse off. Pareto inefficiency exists where A can be made better off without making B worse off etc.
What is a)horizontal equity and b)vertical equity?
a) is treating the same people the same b) treating different people differently.
Why does pareto principle only let us make judgements about movements towards the south east or north west?
Outside of these areas it requires a subjective judgement based on the relative value of each variables utility. (cant make judements on efficient here without making value judgements about equity)
Why is every point on the PPF pareto efficient?
There is no pareto improvement as the only way to increase one variable is by decreasing the other.
Define Kaldors Hicks efficiency?
Where potential pareto efficiency can be acheived when the gainers can fully compensate the losers and there still be a net gain (gains often measured by surplus).
Define consumer surplus? Hpw to work out the size of it on a diagram?
The difference between what consumers were willing to pay and what they actually paid. 1/2 x b x h.
What is producer surplus?
The difference between the price the suppliers were willing to sell at and what they actually received.
What happens to surplus in equilibrium?
Total surplus is maximised.
What happens when price deviates from the equilibrium?
A deadweight loss is created - loss to society of not producing at the equilibrium point.
What is the relationship between efficient and equity?
There isnt one.
