IBE316-5-1 - IBE 316 Economic Policy Stiglitz: Economics of...

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IBE 316 Economic Policy Stiglitz: Economics of the Public Sector Chapter 5: E¢ ciency and Equity (part 1) Keisuke OTSU Sophia University FLA Spring 2008 OTSU (Sophia University FLA) IBE 316 Spring 2008 1 / 14
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Overview Chapter 3 describes Pareto e¢ ciency Chapter 4 explains how and why the government intervenes in the market when the market is ine¢ cient even when the market is e¢ cient Chapter 5 explains the trade-o/ between e¢ ciency and equity OTSU (Sophia University FLA) IBE 316 Spring 2008 2 ± 14
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Overview Focus Questions 1 How do economists think systematically about how to make social choices when there are trade-o/s between the welfare of individuals? 2 How do economists think systematically about the trade-o/s between e¢ ciency and inequality? 3 As a practical matter, how do governments translate these general principles into a form which can actually be used in decision making? OTSU (Sophia University FLA) IBE 316 Spring 2008 3 ± 14
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E¢ ciency and Distribution Trade-o/s Trade-o/ between e¢ ciency and equity: redistribution of wealth in order to reduce inequality is costly Two debates on the trade-o/ How much e¢ ciency do we have to give up in order to achieve equality? Which is more important; e¢ ciency or equity? OTSU (Sophia University FLA) IBE 316 Spring 2008 4 ± 14
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Analyzing Social Choices The social choice should be made by maximizing the social welfare subject to the opportunity set opportunity set: utility possibility frontier social welfare: social indi/erence curve OTSU (Sophia University FLA) IBE 316 Spring 2008 5 ± 14
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Analyzing Social Choices Determining the Trade-o/
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This note was uploaded on 10/22/2011 for the course ECON 316 taught by Professor Keisukeotsu during the Spring '08 term at Sophia University.

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IBE316-5-1 - IBE 316 Economic Policy Stiglitz: Economics of...

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