Efficiency_Handout

Efficiency_Handout - Economic Efficiency according to...

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Economic Efficiency according to Pareto: We have a “Pareto Improvement” in efficiency if – through some policy change or transaction(s) between members of society – we make at least one person better off and NOBODY worse off. We have a “Kaldor-Hicks Improvement” in efficiency if – through some policy change or transaction(s) between members of society – those who are made better off can compensate those who are worse off and still be better off. We have a “Marshallian Improvement” in efficiency if – through some policy change or transaction(s) between members of society – the (marginal) dollar benefits for the winners exceeds the (marginal) dollar costs for the losers. Any mutually beneficial trade increases efficiency under all three measures. Although you may not have identified it as such, you are all familiar with “Marshallian” analyses of efficiency……a little review:
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P Q $5.00 $10.00 $15.00 1,000 2,000 3,000 Consumer Surplus: Difference between maximum amount we are willing to
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Efficiency_Handout - Economic Efficiency according to...

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