Health Sciences 3840B Lecture Notes - Lecture 2: Opportunity Cost, Pareto Efficiency
30 May 2018
School
Department
Course
Professor
Appeal of Pareto efficiency –pretty useful because if you can make somebody better off without harming everybody then it’s good
Pareto Efficient –if you’ve made all the improvements that you can.
Pareto inefficient –if there are still improvements that you can make ‘
1. A to C: person 2 is better off but person 1 is worse off –not a Pareto improvement
A to D: Person 1 is worse off so no pareto improvement
Starting from A there are no Pareto Improvements that can be made
Only Pareto improvement is D to B
D is not Pareto Efficient because there is a Pareto Improvement available
2. A, B, C don’t have any Pareto improvements – nowhere you can go to make at least one person better off without harming people
A B and C are Pareto efficient
3. B and C maximize welfare (sum is 8)
Consequential –don’t need to know how it came about
Procedural –need to know how that allocation came to arise
Doing the same thing and getting the same result
False –resources are scarce already so we need to be efficient with them, it is not due to inefficiency
False –there are still alternatives to the most efficient options so there is opportunity cost
True –This is vertical equity. Often all members of society are not equals so they get unequal distribution of the good to be equitable
True
False - Max welfare is always Pareto-efficient, but not the other way around
False
Lec 2 Efficiency and Equity
May 6, 2018
3:28 PM
Health Economics Page 1
Document Summary
Appeal of pareto efficiency pretty useful because if you can make somebody better off without harming everybody then it(cid:859)s good. Pareto efficient if you(cid:859)ve made all the improvements that you can. Pareto inefficient if there are still improvements that you can make (cid:858: a to c: person 2 is better off but person 1 is worse off not a pareto improvement. A to d: person 1 is worse off so no pareto improvement. Starting from a there are no pareto improvements that can be made. D is not pareto efficient because there is a pareto improvement available: a, b, c do(cid:374)(cid:859)t have a(cid:374)y pareto i(cid:373)prove(cid:373)e(cid:374)ts nowhere you can go to make at least one person better off without harming people. A b and c are pareto efficient: b and c maximize welfare (sum is 8) Consequential don(cid:859)t need to know how it came about. Procedural need to know how that allocation came to arise.
