|
Utility–possibility Frontier
In welfare economics, a utility–possibility frontier (or utility possibilities curve), is a widely used concept analogous to the better-known production–possibility frontier. The graph shows the maximum amount of one person's utility given each level of utility attained by all others in society. The utility–possibility frontier (UPF) is the upper frontier of the utility possibilities set, which is the set of utility levels of agents possible for a given amount of output, and thus the utility levels possible in a given consumer Edgeworth box. The slope of the UPF is the trade-off of utilities between two individuals. The absolute value of the slope of the utility-possibility frontier showcases the utility gain of one individual at the expense of utility loss of another individual, through a marginal change in outputs. Therefore, it can be said that the frontier is the utility maximisation by consumers given an economies' endowment and technology. This means that points on t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Utility Possibility Frontier
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosophers such as Jeremy Bentham and John Stuart Mill. The term has been adapted and reapplied within neoclassical economics, which dominates modern economic theory, as a utility function that represents a single consumer's preference ordering over a choice set but is not comparable across consumers. This concept of utility is personal and based on choice rather than on pleasure received, and so is specified more rigorously than the original concept but makes it less useful (and controversial) for ethical decisions. Utility function Consider a set of alternatives among which a person can make a preference ordering. The utility obtained from these alternatives is an unknown function of the utilities obtained from each alternative, not the sum of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Welfare Economics
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level. Attempting to apply the principles of welfare economics gives rise to the field of public economics, the study of how government might intervene to improve social welfare. Welfare economics also provides the theoretical foundations for particular instruments of public economics, including cost–benefit analysis, while the combination of welfare economics and insights from behavioral economics has led to the creation of a new subfield, behavioral welfare economics. The field of welfare economics is associated with two fundamental theorems. The first states that given certain assumptions, competitive markets produce ( Pareto) efficient outcomes; it captures the logic of Adam Smith's invisible hand. The second states that given further restrictions, any Pareto efficient outcome can be supported as a competitive market equilibrium. Th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Production–possibility Frontier
A production–possibility frontier (PPF), production possibility curve (PPC), or production possibility boundary (PPB), or transformation curve/boundary/frontier is a curve which shows various combinations of the amounts of two goods which can be produced within the given resources and technology/a graphical representation showing all the possible options of output for two products that can be produced using all factors of production, where the given resources are fully and efficiently utilized per unit time. A PPF illustrates several economic concepts, such as allocative efficiency, economies of scale, opportunity cost (or marginal rate of transformation), productive efficiency, and scarcity of resources (the fundamental economic problem that all societies face). This tradeoff is usually considered for an economy, but also applies to each individual, household, and economic organization. One good can only be produced by diverting resources from other goods, and so by producing ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Edgeworth Box
In economics, an Edgeworth box, sometimes referred to as an Edgeworth-Bowley box, is a graphical representation of a market with just two commodities, ''X'' and ''Y'', and two consumers. The dimensions of the box are the total quantities Ω''x'' and Ω''y'' of the two goods. Let the consumers be Octavio and Abby. The top right-hand corner of the box represents the allocation in which Octavio holds all the goods, while the bottom left corresponds to complete ownership by Abby. Points within the box represent ways of allocating the goods between the two consumers. Market behaviour will be determined by the consumers' indifference curves. The blue curves in the diagram represent indifference curves for Octavio, and are shown as convex from his viewpoint (i.e. seen from the bottom left). The orange curves apply to Abby, and are convex as seen from the top right. Moving up and to the right increases Octavio's allocation and puts him onto a more desirable indifference curve while placing ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Utility Maximization Problem
Utility maximization was first developed by utilitarian philosophers Jeremy Bentham and John Stuart Mill. In microeconomics, the utility maximization problem is the problem consumers face: "How should I spend my money in order to maximize my utility?" It is a type of optimal decision problem. It consists of choosing how much of each available good or service to consume, taking into account a constraint on total spending (income), the prices of the goods and their preferences. Utility maximization is an important concept in consumer theory as it shows how consumers decide to allocate their income. Because consumers are rational, they seek to extract the most benefit for themselves. However, due to bounded rationality and other biases, consumers sometimes pick bundles that do not necessarily maximize their utility. The utility maximization bundle of the consumer is also not set and can change over time depending on their individual preferences of goods, price changes and increase ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Pareto Efficient
Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engineer and economist, who used the concept in his studies of economic efficiency and income distribution. The following three concepts are closely related: * Given an initial situation, a Pareto improvement is a new situation where some agents will gain, and no agents will lose. * A situation is called Pareto-dominated if there exists a possible Pareto improvement. * A situation is called Pareto-optimal or Pareto-efficient if no change could lead to improved satisfaction for some agent without some other agent losing or, equivalently, if there is no scope for further Pareto improvement. The Pareto front (also called Pareto frontier or Pareto set) is the set of all Pareto-efficient situations. Pareto originally used the word "optimal" for ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Pareto Efficiency
Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engineer and economist, who used the concept in his studies of economic efficiency and income distribution. The following three concepts are closely related: * Given an initial situation, a Pareto improvement is a new situation where some agents will gain, and no agents will lose. * A situation is called Pareto-dominated if there exists a possible Pareto improvement. * A situation is called Pareto-optimal or Pareto-efficient if no change could lead to improved satisfaction for some agent without some other agent losing or, equivalently, if there is no scope for further Pareto improvement. The Pareto front (also called Pareto frontier or Pareto set) is the set of all Pareto-efficient situations. Pareto originally used the word "optimal" for t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Social Welfare Function
In welfare economics, a social welfare function is a function that ranks social states (alternative complete descriptions of the society) as less desirable, more desirable, or indifferent for every possible pair of social states. Inputs of the function include any variables considered to affect the economic welfare of a society. In using welfare measures of persons in the society as inputs, the social welfare function is individualistic in form. One use of a social welfare function is to represent prospective patterns of collective choice as to alternative social states. The social welfare function provides the government with a simple guideline for achieving the optimal distribution of income. The social welfare function is analogous to the consumer theory of indifference-curve– budget constraint tangency for an individual, except that the social welfare function is a mapping of individual preferences or judgments of everyone in the society as to collective choices, which ap ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Contract Curve
In microeconomics, the contract curve or Pareto set is the set of points representing final allocations of two goods between two people that could occur as a result of mutually beneficial trading between those people given their initial allocations of the goods. All the points on this locus are Pareto efficient allocations, meaning that from any one of these points there is no reallocation that could make one of the people more satisfied with his or her allocation without making the other person less satisfied. The contract curve is the subset of the Pareto efficient points that could be reached by trading from the people's initial holdings of the two goods. It is drawn in the Edgeworth box diagram shown here, in which each person's allocation is measured vertically for one good and horizontally for the other good from that person's origin (point of zero allocation of both goods); one person's origin is the lower left corner of the Edgeworth box, and the other person's origin is th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Pareto Optimum
Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engineer and economist, who used the concept in his studies of economic efficiency and income distribution. The following three concepts are closely related: * Given an initial situation, a Pareto improvement is a new situation where some agents will gain, and no agents will lose. * A situation is called Pareto-dominated if there exists a possible Pareto improvement. * A situation is called Pareto-optimal or Pareto-efficient if no change could lead to improved satisfaction for some agent without some other agent losing or, equivalently, if there is no scope for further Pareto improvement. The Pareto front (also called Pareto frontier or Pareto set) is the set of all Pareto-efficient situations. Pareto originally used the word "optimal" for th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Indifference Curve
In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is ''indifferent''. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come. The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. There are infinitely many indifference curves: one ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cardinal Utility
In economics, a cardinal utility function or scale is a utility index that preserves preference orderings uniquely up to positive affine transformations. Two utility indices are related by an affine transformation if for the value u(x_i) of one index ''u'', occurring at any quantity x_i of the goods bundle being evaluated, the corresponding value v(x_i) of the other index ''v'' satisfies a relationship of the form :v(x_i) = au(x_i) + b\!, for fixed constants ''a'' and ''b''. Thus the utility functions themselves are related by :v(x) = au(x) + b. The two indices differ only with respect to scale and origin. Thus if one is concave, so is the other, in which case there is often said to be diminishing marginal utility. Thus the use of cardinal utility imposes the assumption that levels of absolute satisfaction exist, so that the magnitudes of increments to satisfaction can be compared across different situations. In consumer choice theory, ordinal utility with its weaker assumption ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
