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29

I completely agree with denesp's answer, however I think you can make it even simpler. On a very small scale, it's certainly true that if I gain, somebody else might lose. If I take away my brother's chocolate, then he will lose it, and will most probably not get anything comparable. OK, let's say I prefer chocolate to wine gums and my brother likes ...


17

This is a fundamental question which economics can answer quite well. I'll rephrase your question a little bit- Is economics a zero sum game? The answer is no. Certainly some transactions are, but for the most part, no. It can be proven a little bit more rigorously and denesp has alluded to that by linking the fundamental theorems of welfare economics. I'll ...


15

As a complement to the great answers already here, let me give an even simpler small scale example in which you win and no one else loses: Suppose you have a broken fan at home. Scenario A: you relax on your couch then go to sleep. Scenario B: you take your fan apart, figure it's just a loose screw, tighten it, put it back together again, and it's fixed. ...


8

The two statement say two completely different things. So, no, there is no contradiction. The second welfare theorem essentially says that a system of transfers that results in an efficient allocation can be supported by a competitive outcome. The statement about replacing income taxes with a consumption tax will increase peoples' incentives to save. These ...


5

Let $X$ be the nonempty set of alternatives, $\mathcal{P}_X$ the set of preference relations on $X$ and $N=\{1,\ldots,n\}$ a finite set of agents. Under the universal domain condition, Arrow's theorem concerns functions from the set $\mathcal{P}_X^N=\underbrace{\mathcal{P}_X\times \mathcal{P}_X\cdots\times\mathcal{P}_X}_{n\text{ times}}$ to $\mathcal{P}_X$. ...


5

Suppose you have a product that you can distribute for constant marginal cost $c$. For every $v\geq0$ assume there are some consumers who value the good at $v$. The net welfare created when someone consumes the good is their value minus the cost of production. Thus, if we want to maximise the total social surplus (net of costs), we should give the good to ...


5

This is an answer to the closely related question of "why don't competition/antitrust authorities aim to maximise total welfare rather than consumer surplus?" There are a number of reasons for this: If there are a small number of firms participating in a market then they have a very concentrated interest in that market and therefore have a large incentive ...


5

What it means is the following: Consider the same bargaining game played by two players that are fully informed (i.e. the buyer is also informed about the value of $q$). Then find the equilibrium of this game and calculate welfare. This is the ``full information welfare'' that the question refers to. Then solve the model where only the seller is informed ...


4

Hint: Second Welfare Theorem: Suppose that for every individual $i = 1,...,N$ the utility function $U^i(c_i)$ is continuous, locally non-satiated, and quasi-concave. If $\left\{c_1^P,...,c_N^P\right\}$ represents a Pareto optimal allocation in which $c_i^P >> 0$ for every $i = 1,...,N$, then there exists a set of prices, $p^E \geq 0$ and $p^E \neq 0$...


4

Surplus and welfare are different concepts, but not for the reasons you state, although there are elements of validity in both (1) and (2). They may, however, be used interchangeably in certain contexts and where certain conditions are met. Both “surplus” and “welfare” are terms from ordinary language that in economics are used in more precise senses. "...


4

I think this is more of a microeconomics question. As long as it is not forceful but voluntary reallocation of goods no one loses. In fact even more can be said but you need to read up on it a little. http://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics The basic idea is that trade benefits both parties. An example: Your fridge is broken ...


4

Questions with numbers are usually not as good as questions without numbers. If you had written down the formula for CV and EV you would probably have noticed that your premise is false. CV and EV are not supposed to have opposing signs. You can see this from their definitions where $$ CV = e(p_1,u_1) - e(p_1,u_0), \hskip 20pt EV = e(p_0,u_1) - e(p_0,u_0). $...


3

The basic result about the effect of trade on income distribution is Stolper-Samuelson in the Heckscher-Ohlin model, which says that trade liberalization is associated with a rise in the prices of the factors of production that are used intensively in the production of goods the country has a comparative advantage in, and vice versa. If you take "skilled" ...


3

I am afraid the solution to world poverty will not be two pages long. Some flaws: You cannot simply give poor people in other countries money, their government controls their financial system. Even if the government agreed and you transferred millions of dollars it would not make more housing and consumer goods available at their location, they would just ...


3

This does not contradict welfare theorems (1st or 2nd), because income tax is a distortionary tax just like consumption taxes. Income tax is a subsidy on the consumption of leisure. Endowment tax would be a lump-sum tax for each person independent of the person's choices, among others the choice of how much to work, what qualifications to obtain etc. These ...


3

You are certainly wrong regarding surplus, which is measured in dollars, not in units of welfare. In particular, according to the definition you've given, surplus depends on the choice of welfare function $W$, whereas in fact surplus is independent of that choice (and indeed the concept of surplus makes perfectly good sense in the absence of any welfare ...


3

I think you are looking for data on real median incomes. If this concept is unknown to you, you can read about it on wikipedia. According to the data the real income of most households decreased after the financial crisis but is still above the 1995 level. This means that most households do live better. I don't know if the number of people on welfare would ...


3

I think the easiest way of looking at this is the macroeconomic perspective. If every transaction necessarily was a zero-sum game, there couldn't be growth. Yet, we see that (under several measures) all economies are growing and getting richer - even if the underlying distribution is skewing, which is irrelevant for this point.


2

(This ended up being a long post, but I find the approach of the textbook a bit outdated). It is interesting to examine the issue from a (simplistic) game-theoretic point of view. Assume a fixed (no entry) large number $N$ of small identical producers, meaning that the actions of each one individually does not affect the market. The market demand curve ...


2

You are right. Set of Pareto efficient allocations consist of all feasible allocations $((x_{11}, x_{21}), (x_{12}, x_{22}))$ satisfying the property that individual 1 consumes all of good 2 i.e. $x_{21} = 1$ and $x_{22} = 0$. Competitive (or Walrasian) equilibrium in such an economy does not exist. At all price vectors $(p_1, p_2)$ satisfying $p_1 > 0$ ...


1

Walras' law describes market equilibria conditions, which states roughly speaking that if there exists within an exchange economy market equilibria for $n-1$ good markets, then the last good market $n$ is also in equilibrium. Thus, we have a market system with $n$ equations and $n-1$ independent variables, where the last market is linear dependent from the ...


1

To the extent you are constructing marginal decisions from preferences, the general answer is no. Any utility function that preserves preference orderings maps to the same partial or total order ranking. As a consequence, $U(w)=\log(w),w>0$ and $U(w)=\sqrt{w},w>0$ preserve preference orderings with respect to $w$. Issues can exist in the multivariate ...


1

I believe Marshallian demands are less steep than Hicksian demands because we reverse the y and x axis in economics. Thus a larger derivative of x with respect to p will be less steep since p is on the vertical and x is on the horizontal. (image from here)


1

I would say all deadweight loss is welfare loss but not all welfare loss is deadweight loss. For example an unregulated polluter causing a negative externaly results in a welfare loss compared to the social optimum. There is no 'missing production' and hence no deadweight loss in this case. Edit: According to Wikipedia, the loss created by externalities ...


1

I'm not really sure why this is tagged [social-welfare] or [welfare economics]. It seems to me that more appropriate tags would be [history] and/or [international economics] (since the question involves international relations), and/or [game theory] (since the question involves putatively rational behavior in a multi-agent context). Having said that, here ...


1

Something that is often overlooked when considering stagnation of income is the fact that even if (real) income did not increase at all, most people would still be better-off over time thanks to technological change, improvements in healthcare, etc. For example, even relatively poor households now have access to smartphones—things that the very wealthy did ...


1

A few points to note. 1.) With more labor comes more goods that need to be produced. This can be in the form of goods, services, or capital needed to augment the production of labor. If we are talking about whether there are enough raw/natural resources needed to make these things as population increase, note that your worry is not new. As population ...


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