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    The document discusses the tradeoff between equity and efficiency in markets. While competitive markets are typically efficient, the outcomes they produce may not be equitable as some benefit greatly while others do not. As a society, we may want to alter these outcomes to be more fair, but it comes at the cost of reduced efficiency. The lecture explores views on income differences and how tools like taxes and transfers can impact the distribution of income versus the efficiency of the economy.

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    The document discusses the tradeoff between equity and efficiency in markets. While competitive markets are typically efficient, the outcomes they produce may not be equitable as some benefit greatly while others do not. As a society, we may want to alter these outcomes to be more fair, but it comes at the cost of reduced efficiency. The lecture explores views on income differences and how tools like taxes and transfers can impact the distribution of income versus the efficiency of the economy.

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    5 views2 pages

    Equity and Efficiency

    Uploaded by

    CoursePin
    The document discusses the tradeoff between equity and efficiency in markets. While competitive markets are typically efficient, the outcomes they produce may not be equitable as some benefit greatly while others do not. As a society, we may want to alter these outcomes to be more fair, but it comes at the cost of reduced efficiency. The lecture explores views on income differences and how tools like taxes and transfers can impact the distribution of income versus the efficiency of the economy.

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    Attribution Non-Commercial (BY-NC)
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    Equity and Efficiency

    Session Overview
    Up to this point in the course, we have focused only on the outcomes generated by the market and their efficiency properties. Competitive equilibria in a market are typically efficient, but they may not be equitable: Some people may benefit greatly from the market's operation, while others do not. As a society, we may decide we want to alter these outcomes in a way that seems more equitable, but such changes typically come at the cost of efficiency. In this lecture, we will begin to learn about the efficiency-equity trade-off. How do we feel about differences in income? This lecture explores this question and the efficiency- equity trade-off. Image courtesy of Vince_Lamb on Flickr. Keywords: Income distribution; social welfare function; isowelfare curves; Utilitarianism; Raulsian criteria; Nozickian; commodity egalitarianism

    Session Activities
    Readings Before watching the Lecture Video, read the course textbook for an introduction to the material covered in this session:

    [R&T] Chapter 19, "Inequality, Poverty, and Discrimination." Sections 19.12. [Perloff] Chapter 10, "General Equilibrium and Economic Welfare." (optional)

    Lecture Videos View Full Video

    Lecture 23: Equity and Efficiency (00:49:36) Transcript (PDF)

    View by Chapter

    Overview of the Equity-Efficiency Tradeoff (00:06:31) Social Welfare Functions: Utilitarian, Rawlsian, Nozickian, Commodity Egalitarian (00:18:15) Income Distribution and Poverty (00:09:49) The Impact of Tax and Transfer (00:09:49)

    Resources

    Graphs and Figures (PDF)

    Further Study
    These optional resources are provided for students that wish to explore this topic more fully. Textbook Study Materials See the [Perloff] companion website for an overview of the main topics covered in the chapter, as well as quizzes, applications, and other related resources.

    Chapter 10

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