Economics CFA

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Economics CFA
2010-09-06 01:23:47

Reading 14 - Efficiency and Equity
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  1. Resources might be allocated using these 8 ways:
    • Market price
    • Majority rule
    • Command
    • Contest
    • First come, first serve
    • Force
    • Lottery
    • Personal characteristics
  2. Marginal Benefit
    • - value of one more unit of a good or service
    • - measure it by the max. price that is willingly paid for another unit of the good or service
    • - willingness to pay determines demand
    • - the market demand curve is the economy's marginal social benefit (MSB) curve
  3. 1) Consumer surplus
    2) Producer surplus
    • 1) value of a good minus the price paid for it, summed over the quantity bought
    • 2) the price received for a good minus its minimum supply-rice, summed over the quantity sold
  4. Invisible hand
    • adam smith - suggest that competitive markets send resources to the uses in which they have the highest value
    • market forces persistently bring marginal cost and marginal benefit to equality and maximize total surplus
  5. deadweight loss
    • the decrease in total surplus that results from an inefficient level of production
    • comes from unerproduction or overproduction
  6. obstacles to efficiency that bring underproduction or overproduction
    • price and quantity regulations
    • taxes and subsidies
    • externalities
    • public goods and common resources
    • monopoly
    • high transactions costs
  7. Utilitarianism
    • nineteenth century idea that only equality brings efficiency
    • principle that states that we should strive to achieve "the greatest happiness for the greatest number."
    • transfer income from rich to poor so income levels are equal
  8. symmetry principle
    • requirement that people in similar situations be treated similarly
    • equality of oportunity
    • fairness has two rules: 1) the state must enforce laws that establish and protect private property 2) Private property may be transferred from one person to another only by voluntary exchange