ECON 3B03 Lecture 3: Lecture 3
15 Jan 2019
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Document Summary
The branch of economic theory concerned with social desirability of alternative economic states. Distinguishes cases when private markets work well from cases where government intervention may be warranted. Uses the concepts of efficiency and equity to evaluate the alternatives. Relies heavily on basic microeconomics tools, indifference curves. Edgeworth box - an analytical device used to model welfare economic theory. Depicts distribution of goods in an economy with. At the optimal basket, each good gives you equal bang for the buck. The extra utility per dollar spent on x is equal to the extra utility per dollar spent on y. Each point in the box represents an allocation between adam and eve. Each point in the box fully exhausts the resources on the island. Adam"s consumption of apples and figs increases as we move toward the northeast in the box; eve"s consumption of apples and figs increases as we move toward the southwest in the box.
