Fairness and effectiveness

1. Inequality in income and wealth distribution
1. Distr. of income and wealth characteristics:

i. Distr. by factor (functional distribution) – factors are: land(rent), labour(wages), entrepr. ability(profit), capital(interest).

!!! In Russia today – wages = 30-40% of GDP è labour isn’t a major source of income and people often try to find some illegal sources of income.

ii. By size of income (we can divide population into groups(10%(decile), 20%(quintile), 25%(quartile))

Population	% of income	Sum of pop.	% sum
20%	6%	20%	6%
20%	10%	40%	16%
20%	17%	60%	33%
20%	22%	80%	55%
20%	45%	100%	100%

1. Lorenz curve(LC) – graphical income device, which shows the degree of inequality in income distribution by size.

2. Gini coefficient (GC) – shows the degree of inequality in income distribution.

!!! Soc. countries GC = 0,2 – 0,25

iii. By occupation (region, industry, etc)

!!! Income – flow concept(received regularly)

!!! Wealth – stock concept(estimated at a particular time moment)

b. Inequal. in wealth distrib > Ineq. in income distrib.

i. Factor of inheritance

ii. Differences in persomal propensities to save

iii. Inequality in income distribution

iv. Inequl. in individual productivity, talents, skill, etc…

1. Pareto efficiency and Edgeworth box.
1. Pareto efficiency – takes place, when it’s not possible to improve the well being of anyone, without making someone else worth off.(we assume that there is only 2 people in the society)
2. Pareto improvement – takes place, when changes in production and consumption can make at least one person better off, without making anyone worth off(X à Y)

1. Edgeworth box

i. Pareto efficiency allocation:

1. takes place, when there is no way to make all the people better off.

2. all the gains from trade have been exhausted

3. there are no mutually advantageous trades to be made.

ii. Contract curve (CC) – each person is on his highest possible IC, given the IC of the other person.

1. I theorem of welfare economics – all market equilibriums are Pareto efficient.
2. II theorem of welfare economics – if all the agents have convex preferences, than there will always be a set of prices, that each Pareto efficient allocation is a market equilibrium for an appropriate assignment or endowment.
3. Pareto efficiency takes place only under certain conditions:

i. Perfect competition.

ii. No externalities.

iii. Hicks – Coldu (?????) criteria of efficiency. It says that an economic project is efficient if all the possible gains can compensate all the possible losses. And still they remain net gain.

1. Principle possibility of losses compensation.icks

Social Influence Curve (SIC) slope = MSBx / MSBy

Production Possibility Curve (PPC) slope = MSCx / MSCy

1. Market failures (MF) and government policy. MF – things that market can’t do. They are:
1. External effects / externalities.
2. Market doesn’t allocate resources efficiently.
3. Public goods are not produced by the market.
4. Market power or monopolistic trends. The market has no instruments against it.
5. Incomplete/asymmetric information.
6. Inflation.
7. Unemployment.
8. Problem of poverty.
9. Time lags.
10. Dependence. Market regulates the activity of labour people. But there are also children, pensioners. Market doesn’t spread its mechanisms on them.
2. Externalities. Third party effect. Side effect. Bystander effect. It means that the costs and benefits are borne by a third party.
1. There are positive and negative external effects, divided into 4 groups:

i. External costs of production.

ii. External costs of consumption.

iii. External benefits of production.

iv. External benefits of consumption.

Дата добавления: 2015-10-28