The paper "Microeconomic Policy Evaluation" is a wonderful example of an assignment on macro and microeconomics. In a society, efficiency and equity contradict. This occurs when more efficiency leads to less equity and vice versa. This leads to a trade-off between the two objectives when they contradict. This view is opposed by the Rawlsian approach which asserts that social welfare is able to improve when the lowest position is able to improve (Friedman, 2002). The increase of utility of one individual can be used to increase the utility of the other. Rawlsian SWF Claims that distributive justice is biased depending on our status in life.
The Rich does not favor redistribution policies while the poor will always do. W1- moving from point A, which is an equal utility to point B makes one better off without affecting the welfare of another individual. At this point, social welfare is not affected. The theory is the opposite extreme of utilitarianism. Through the use of social welfare function, it is possible to balance efficiency and equity. SWF also acts as a function of the per capita income and income equality in a given society.
The Pareto optimally is seen to reject ethics due to the fact that it does not look at individuals as having an equal capacity in enjoying a share of income (Dolgoff & Feldstein, 1999). Despite this, Pareto efficiency criteria are seen as one of the most desirable social welfare function. According to the Pareto principle, an increase in one-person income in a society holding other things constant leads to an increase in social welfare (Schneider, 2006). This is due to the fact that increases in one person's income increases total society income and changes inequality. Social welfare function is thus made of two arguments which are efficiency and equity.
There is Sen-type SWF which has its main emphasis on efficiency. According to Sen-type SWF, when there is an increase in allocation to the rich in an extreme cases, there is an increase in social welfare (Schneider, 2006). ADAS PeB E PrC AD Qe Qr Fig. 4, First fundamental theorem and social welfare Point Q is the competitive equilibrium. Any quantity other than Q, minimizes social efficiency. At Pr, CS=A+B, PS=C At Pe, CS=A+D PS=C+B+E Loss of surplus=D+E
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