Author Question: What is the utilitarian idea of fairness and what is wrong with it? What will be an ideal ... (Read 77 times)

cool · **on:** Jun 29, 2018

What is the utilitarian idea of fairness and what is wrong with it?

What will be an ideal response?

Question 2

Why isn't slope as useful as elasticity to measure the responsiveness of one variable to another?

What will be an ideal response?

jxjsniuniu · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

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.

Answer to Question 2

The numerical value of slope depends on the units used to measure the variables on the axes. Thus, if two demand curves represent the same demand behavior but are measured in different units (ounces versus pounds, for example), we will get two different measures of responsiveness. Elasticity does not have this problem because it is calculated using percentage change.