ECO2003F Notes
Unit 5
The Rules of the Game
o Institutions matter for social outcomes.
o How can workers, firms and the government interact?
o Institutions can affect the income people receive for their work:
- What factors determine final outcomes?
- What criteria can we use to evaluate outcomes?
- How can we improve final outcomes?
o How does the growing economic pie get divided?
Pareto Efficiency
o Allocation = An outcome of an economic interaction (who does what and
who gets what).
o An allocation is Pareto efficient if nobody can be better off without making
somebody worse off.
o An outcome where both people are better off Pareto-dominates a lesser
point.
o There is often more than one Pareto efficient allocation.
o Pareto criterion does not help us choose among allocations.
o Pareto efficiency is a weak requirement for outcomes, because it doesn’t
consider fairness.
Unit 5
The Rules of the Game
o Institutions matter for social outcomes.
o How can workers, firms and the government interact?
o Institutions can affect the income people receive for their work:
- What factors determine final outcomes?
- What criteria can we use to evaluate outcomes?
- How can we improve final outcomes?
o How does the growing economic pie get divided?
Pareto Efficiency
o Allocation = An outcome of an economic interaction (who does what and
who gets what).
o An allocation is Pareto efficient if nobody can be better off without making
somebody worse off.
o An outcome where both people are better off Pareto-dominates a lesser
point.
o There is often more than one Pareto efficient allocation.
o Pareto criterion does not help us choose among allocations.
o Pareto efficiency is a weak requirement for outcomes, because it doesn’t
consider fairness.
