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Choosing a Public Project
A city government is evaluating two mutually exclusive public projects. Project A generates immense benefits for a small, wealthy segment of the population, with minor costs to the rest. Project B generates moderate benefits for the entire population. An initial analysis concludes that for both projects, the final allocation of resources is one where it's impossible to make anyone better off without making someone else worse off. To decide which project provides a greater overall benefit to society by explicitly weighing the well-being of different groups, what analytical framework must the government employ? Justify your answer.
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Economics
Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Application in Bloom's Taxonomy
Cognitive Psychology
Psychology
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An economist is evaluating two different economic policies for a society. Policy A leads to an outcome where no individual can be made better off without making someone else worse off, but results in a very unequal distribution of well-being. Policy B also leads to an outcome where no one can be made better off without harming another, but it results in a much more equal distribution of well-being. To formally compare and rank these two outcomes based on the overall good for society, which concept is specifically designed for this task?
Evaluating Policy with a Social Welfare Function
A social welfare function is a tool used to rank different societal outcomes. Its primary limitation is that it can only determine that one outcome is better than another if that outcome makes at least one person better off without making anyone worse off.
Distinguishing Societal Evaluation Criteria
Match each description of a societal objective with the principle or function that best represents it.
Choosing a Public Project
A(n) _______________ is a function used to rank different societal outcomes by aggregating the well-being of all individuals, thereby allowing for comparisons between different efficient allocations based on judgments about equity and distribution.
An economist is tasked with ranking several different, but equally efficient, distributions of resources in a society. To accomplish this task using a social welfare function, what is the most critical and unavoidable judgment the economist must make?
Choosing Among Efficient Outcomes
A policymaker is considering two mutually exclusive projects. Project Alpha generates a large increase in well-being for the wealthiest 10% of the population and a small increase for the poorest 10%. Project Beta generates a moderate increase in well-being for the poorest 10% and no change for the wealthiest 10%. The total increase in well-being across all of society is greater for Project Alpha than for Project Beta. Based on this information, which project would be chosen by a social planner whose goal is to maximize the well-being of the worst-off individual, and which would be chosen by a planner whose goal is to maximize the sum total of well-being in society?