Social Objectives and the Allocation of Resources (ESP Chapter 1) (Social…
Social Objectives and the Allocation of Resources (ESP Chapter 1)
An efficient output is the level of output at which net benefit is maximised - the largest excess of benefits over costs.
Page 10, efficient != equitable. Net maximum benefit defined for a given distribution of income which may be inequitable. Net maximum benefit is a function of total benefit and total cost, which are sums of individual benefits and costs.
Distribution 1: A single person gets a rolls royce, nine other people don't get the bare essentials.
Distribution 2: Ten people get the bare essentials.
Distribution 2 is more equitable by most subjective assessments as well as in a relative sense to full equality or minimum standard measures. It may also be more efficient if the total benefit derived by nine individuals getting essentials exceeds the benefit derived by one individual getting a rolls royce. The book argues that the efficiency criterion is independent of income distribution but it clearly isn't - changing the distribution can change the efficiency if marginal benefits are different. :!?:
Output is divided fairly. Fairness could mean full equality or minimum standard of distribution.
Freedom of movement
Freedom under the law
Promotion of altruistic behaviour
Social Objective Trade-offs
Efficiency vs Equity
Workers could reduce their output in a system considered inequitable, preventing the efficient level of output.
Freedom vs Community
"A society where individual liberty is paramount is unlikely to be especially communal"
e.g. protecting every individuals right to make a noise at night could violate communal wellbeing, but couldn't communal wellbeing just be restated as individual rights to a noise-free environment. Why does freedom necessarily conflict with community :!?:
The Market System
Consumers demand goods and services when they are willing and able to pay for it. In general, consumers demand less as the price increases.
Producers supply goods and services. In general, producers supply more as the price increases.
Markets are at equilibrium at a particular combination of price and output where there is no excess of demand or supply. Markets tend to move towards equilibrium and respond relatively quickly to change.
If the supply curve is equal to the marginal social cost curve, and the demand curve is equal to the marginal social benefit curve, then market equilibrium == efficiency == net maximum benefit.
Pollution control standard
Rent control restriction
Public health legislation
Tax or Subsidy
Carbon emissions tax
Education grants / loans
Healthcare free at the point of use