What is the utilitarian idea of fairness and what is wrong with it?
What will be an ideal response?
The utilitarian idea of fairness implies that equality of incomes is necessary for the allocation of resources to be "fair." There should be income transfers from the rich to the poor until equality is achieved, because the marginal benefit of the last dollar of income is the same for everybody. There are two problem with utilitarianism:
• It ignores the cost of implementing the income transfers, which will decrease the total goods and services that the finite resources of society can produce. The size of the economic pie will be smaller.
• It ignores the Big Tradeoff, the tradeoff between efficiency and fairness. Taxing people's incomes makes them work less, which decreases the size of the economic pie and thereby diminishes the total amount that can be transferred to the poor.
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The international treaty established to negotiate lower trade restrictions is known as the
a. World Bank Act b. General Agreement on Tariffs and Trade (GATT) c. International Association for Free Trade (IAFT) d. Countries United for Free Trade (CUFT) e. International Development Fund
What is the nature of the elasticity of the demand curve faced by perfectly competitive firm?
a. Perfectly inelastic b. Perfectly elastic c. Unit elastic d. Highly elastic
In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.
A. high; low B. low; low C. high; high D. low; high
An economy in which output has decreased and prices have increased would suggest that there has been a:
A. negative demand side shock. B. negative supply side shock. C. positive demand side shock. D. positive supply side shock.