Interactive Session 2

Question 1

If Anna has price setting power, what price will she choose?

Answer 1

1. Anna anticipates Bilal’s response to her price setting –> creating Bilal’s Price Offer Curve
2. Then she maximises her own utility subject to it –> reach General Monopolistic Equilibrium

Question 2

is gme pe

Answer 2

no.

Question 3

How does GME effect prices?

Answer 3

Anna forces down the relative price of the good she wants

so she can sell less of her good for more of the desired good in gme

Question 4

what does a BL_b

what does B represent ?

Answer 4

Often extra distaste for labour; laziness mayb

Question 5

starmens et al (2017)

Answer 5

Starmans et al (2017) reports that when asked to distribute resources among a large group
of people in the real world, people reject an equal distribution, favouring a degree of
inequality. Why? The authors argue that people care about fairness rather than inequality
per se. If individuals in society exhibit variation in effort, ability, moral deservingness, and so
on, then a fair system would take these considerations into account when determining the
optimal distribution.
On this basis, Matt’s lower income is the result of him exerting less effort, and it might be
fair to allow for (at least some of) the resulting inequality to persist.

Question 6

Hufe et al 2018

Answer 6

Hufe et al (2018) examines ‘unfair inequality’ by introducing the distinction between
‘circumstance’ and ‘effort’ as determinants of income. Circumstances are factors outside an
individual’s control (e.g. race, gender, parental wealth) that give rise to ‘inequality of
opportunity’ or ‘unfair inequality’, while effort comprises all factors within the individual’s
control that affect income. The latter are arguably not unfair and so need not be corrected
for. The authors argue that individuals should be held responsible for decisions inside their
control, while at the same time avoiding extreme outcomes

Question 7

Is a society where the most productive become more productive necessarily better?

Answer 7

Total well-being rises as Marie becomes more productive, but the distribution of income
becomes more unequal. Whether this is better or not depends on the ethical
distributional theory espoused. A utilitarian would argue it is better, a Rawlsian that it is
unchanged since Matt’s well-being is stagnant. Whether it is ‘fair’ for Marie to
appropriate all the benefits arising from her higher productivity is the subject of debate.
Can you think about arguments either way