Chapter Questions
What is the nature of welfare economics?
How are the goals selected for evaluation of welfare?
What are the major goals which are generally employed as a basis for welfare economics?
Why can freedom of choice never be absolute?
What does the term "maximum satisfaction of wants" mean?
What are the requirements for optimum efficiency in the use of resources?
Why is the operation of firms at the point of lowest LRAC essential for optimum efficiency in the use of resources?
Why, in perfectly competitive markets, will firms operate, over a long-run period, at the point of lowest LRAC? Will they necessarily do so in imperfectly competitive markets? Explain.
Why does optimum adjustment of production require equality of the marginal rate of substitution and the marginal rate of transformation? What requirements must be fulfilled for this equality to be attained?
Indicate some examples, other than those given in the chapter, of divergence between costs to the economy and costs to the individual producer.
Give examples of external economies of consumption.on.
What is the significance for economic welfare of the failure of price to equal marginal cost in imperfectly competitive conditions?
How would you justify, in terms of welfare economics, the following government policies?(a) high excise taxes on liquor(b) municipal zoning ordinances(c) financing subway construction by taxes on motor vehicle use(d) prevention of price discrimination(e) restriction of entry of competing firms into the public utilities field(f) provision of funds for agricultural research(g) legislation prohibiting "featherbedding"
In what respects is perfect competition superior to imperfect competition from the standpoint of welfare economics? In what respects is it inferior?
Why is it difficult to state categorically that any particular change increases economic welfare of society? What type of change is regarded as desirable in terms of Pareto optimum? Why is this a very restrictive rule?
What is the compensation principle? What are the limitations of the rule?
What is meant by a "social welfare function"?
18. Explain the various approaches to the definition of the optimum pattern of income distribution.