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17 Cards in this Set
- Front
- Back
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Why is it unclear whether all branches of economics are genuinely committed to maximizing aggregate welfare? |
- focus on welfare maximization implicitly assumes general interest is the sum of individual interests - general interest objectively defined independent of individual preferences - many economic schools are either ambiguous about policy or support a policy that is divorced from individual interest |
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What are the 2 fundamental theorems of welfare economics? |
1) under a set of restrictive conditions (perfect competition & information, etc.) a market will tend towards a competitive equilibrium that is weakly pareto optimality 2)under even stricter assumptions, a social planner can achieve any pareto optimal outcome by reallocating resources via lump-sum wealth redistribution then letting the market free |
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What is the greenwald-stiglitz theorem? |
In the presence of either imperfect competition or imperfect information, markets do not lead to a pareto optimal outcome. |
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What is equity vs. efficiency? |
Equity: concerned with the 'fairness' of the allocation of resources - vertical: treating unequals unequally -horizontally: treating equals equally Efficiency: concerned with optimizing the use of resources - allocative: production reflects consumers' preferences (tension with equity) - productive: economy is at PPF (could not produce more of one good without foregoing another) |
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What is Keynes' view on technological unemployment? |
That technological unemployment is an opportunity, and will inevitably lead to an increase in aggregate leisure. Attempt to satisfy 2nd class needs is an arms race leading to overwork and overconsumption, leading to a loss of aggregate welfare |
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What are Adam Smith, Malthus and Ricardo's interpretations of Keynes' view on technological unemployment |
Smith: it's good that we are deceive into believing we derive more satisfaction from consumption than we actually do because it keeps human industry in motion Malthus: much more labour in the world than necessary for production of commodities essential to happiness Ricardo: happiness is an object to be desired, but not necessarily through luxury (vs. simple pleasures) and labour might only increase the happiness of the employer |
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What was John Stuart Mill's argument for a zero-growth steady state? |
Wealth increase is not boundless: simply a 'postponement' of the transition to stationary state |
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From Stiglitz's position, why did leisure fail to increase as much as Keynes' anticipated? |
-productivity and GDP per capita improved but leisure only moderately increased, especially in europe - lack of correlation between reported happiness and higher GDP per capita - markets as a substitute for communal goods (might not be captured by GDP) -suggestion that economic activity crowds out other types of activity |
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What is the Veblenesque explanation for why increased wages are not conducive to increased happiness? |
Relative consumption is what matters as opposed to absolute level of consumption - individual consumption represents a negative externality on others |
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What is the explanation of why increased wages are not conducive to increased happiness as a coordination problem? |
The value of one person's leisure increases with respect to the amount of leisure of others, creating multiple stable equilibriums: europeans at high-leisure low-consumption and americans and low-leisure high-consumption (work also influenced by social norms) |
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What is the explanation of why increased wages are not conducive to increased happiness in terms of endogenous preferences? |
Leisure/cultural goods are experience goods, but corporations have little interest in educating the public to appreciate them because it involves little profit. |
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What are the contemporary criticism of GDP growth? |
1) the eastern paradox: no correlation between happiness and GDP per capita above $15,000 per year 2) GDP measures goods of questionable quality (branding, welfare reducing activity) 3) economic activity generates strong negative externalities that might irreversibly impact climate (unsustainable) 4) economic activity crowds out other kinds of activity that might be more meaningful but less efficient 5) GDP growth obtained by allowing inequalities to increase 6) economic prosperity one of several fundamental goods, often a means rather than an end |
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What are the points of view in defence of GDP growth? |
1) preference for consumption is insatiable, independent of positional goods argument, however preference for leisure may be satiable (eventual boredom) 2) work vs. leisure might not be an appropriate dichotomy (does not consider activities such as honour and duty which qualify as work but are also intrinsically worthy/self-actualizing) 3) development of appreciation for leisure would undermine the dynamism of societies 4) people may see paternalism in the argument promoting a good life |
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What are the criticisms of GDP as a metric ? |
It might fail to capture economic activities or close substitutes in certain instances - especially serious in the transition from industrial to postindustrial society |
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Why are governments interested in measuring GDP rather than wellbeing? |
1) GDP is objective while wellbeing can be subjective 2) governments tax economic activity, not wellbeing 3) GDP allows governments to manage demand via fiscal and monetary policy |
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What are the reasons GDP does not capture all economic activity? |
1) lots of free content is not captured by GDP (Facebook, youtube, etc.) 2) does not capture the increase in wellbeing as a result of increased choice 3) improvements in quality may not be properly understood by statisticians, resulting in overstating of inflation and understating of GDP growth rates 4) some sectors (government services) are evaluated at cost 5) underestimates home-production activities and community--produced goods |
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What are 2 approaches to valuing free digital services ? |
1) estimate the value of time spent on the internet 2) use rising internet traffic as a proxy |
