ECON361 Lecture 4: Module 4 Efficiency

• School: University of Waterloo
• Department: Economics
• Course: ECON361
• Professor: Fiona Rahman

Document Summary

Part a (chapter 2: cba and efficiency. Cba is a method for measuring allocative efficiency: allocative efficiency: resources are deployed in their highest valued use in terms of the goods and services they create. Pareto improvement occurs when an allocation makes some better off without making others worse off. Pareto inefficient occurs if an allocation allows for pareto improvement. Pareto efficient occurs when an allocation is such that no pareto improvements are possible. Most policies and/or decisions will give rise to benefits and costs, but not necessarily to the same individuals. Definition: payment that one would have to make or receive under a policy/decision so one would be indifferent between the status quo and the policy/decision with the payments. In addition to the costs and benefits to individuals resulting from a decision, we need to account for the cost of resources (inputs) employed to execute the decision or implement a policy.