Topic 08 Normative properties

Question 1

Utilitarian Social welfare/ surplus

Answer 1

The total of all the surplus in the economy
W= CS+PS(+Gov rev etc- costs)

Question 2

which surplus is on top

Answer 2

consumer surplus

Question 3

first & second theorem of welfare economics

Answer 3

perfectly competitive equilibrium is pareto efficient
any pareto efficient outcome can be achieved with competitive prices given the appropriate initial transfers of surplus

Question 4

what role does competitive price play

Answer 4

tells consumers how much to demand and each firm how much to produce (informative role of prices)
divides social welfare into CS&PS etc