ECON111 Lecture Notes - Lecture 5: Competitive Equilibrium, Marginal Cost, Marginal Utility
Week 5 Ethics, Efficiency and Markets
Ethics
Ethics is the study of the moral rules and principles that we use to make decisions
about what is right or wrong
Approaches are:
- Consequentialism
- Deontology
Consequentialism
- Proposes that ‘one should judge things morally by their intrinsic value and by
the value of their consequences’
- Actions and decisions are judged by their final result
- The best option is the one that generates the greatest good for the greatest
number
- E.g. the end justifies the means
Deontology
- Proposes that actions are right or wrong in themselves regardless of their
consequences
- People have the duty to act accordingly to rules regardless of the outcomes
- Founder was Immanuel Kant (1724-1804)
- E.g. the end can never justify the means
Differences: the switch dilema
A trolley is headed down the tracks and will kill 5 workers if nothing is done. You can
pull a switch that will save the 5 people but will kill 1 person on the side by pulling the
switch. Is it morally acceptable to hit the switch and kill 1 person instead of 5???
Consequentialism - pull the switch and kill 1
Deontology - don’t pull the switch and kill 5
Economics and Consequentialism
- If you are comparing two choices from a consequentialist perspective then
you compare the good (benefits) and the bad (costs) consequences of a
preferred choice
- The preferred choice is the one that generates the greatest net benefit
- The key question is the objective that economics tries to achieve
- (the economic problem)
- What mechanism efficiently allocates scarce resources?
find more resources at oneclass.com
find more resources at oneclass.com
Economics and Deontology
- Ethical considerations from a deontological perspective often impacts on the
existence and operation of markets
- Use of the declaration of human rights
- Even though the market is working efficiently the outcome of wage is an
ongoing problem for equilibrium
- E.g. markets in human slavery results in more output however it is unethical
Allocation Methods
Market price
- When a market allocates a scarce resource, the people who get the resource
are those who are willing to pay the price
- Most resources that are supplied are done this way
Command
- Allocates resources by the order of someone in authority
- E.g. labour time is allocated to specific tasks at work
- Works well in organisations with clear lines of authority but badly in a whole
economy
- Also like communism (USSR)
Majority rule
- Allocates resources in the way that a majority of voters choose
- Societies use majority rule (democracy) for decisions about tax rates, tax
spent, resources and health care
- Works well if the decision affects lots of people
- E.g. voting, referendum
Contest
- A contest allocates resources to a winner
- Contest works when player efforts are hard to monitor and reward directly
- E.g. sporting events, the Oscars
First come first serve
- Allocates resources to those who are first in line
- Works when there is high demand and low quantity
- E.g. restaurant ques for tables, airline allocates discount seats
Sharing equally
- When a resource is shared equally and everyone gets the same amount
- People must be in agreement of its use and implementation
- E.g. sharing food
Lottery
- Allocate resources to those with the winning number, card or ticket
- Works well when there is no effective way to distinguish among potential
users of a scarce resource
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Ethics is the study of the moral rules and principles that we use to make decisions about what is right or wrong. Proposes that one should judge things morally by their intrinsic value and by the value of their consequences". Actions and decisions are judged by their final result. The best option is the one that generates the greatest good for the greatest number. Proposes that actions are right or wrong in themselves regardless of their consequences. People have the duty to act accordingly to rules regardless of the outcomes. E. g. the end can never justify the means. A trolley is headed down the tracks and will kill 5 workers if nothing is done. You can pull a switch that will save the 5 people but will kill 1 person on the side by pulling the switch. Consequentialism - pull the switch and kill 1. Deontology - don"t pull the switch and kill 5.
