Why does Okun think there is a trade-off between equality and efficiency?
To the extent the system succeeds, it generates an efficient economy. But that pursuit of efficiency necessarily creates inequalities. In hence, society faces a trade-off between equality and efficiency.
How does equality affect efficiency?
Early this year, economists at the International Monetary Fund produced empirical results that seemed to upend the old consensus. They found that greater equality is associated with faster subsequent medium-term growth, both across and within countries.
Which statement describes the equity-efficiency trade-off?
The Correct option is: Actions intended to make economic outcomes fairer can cause efficiency to decrease.
What is efficiency and equality?
Another trade-off society faces is between efficiency and equality. Efficiency means that society is getting the maximum benefits from its scarce resources. Equality means that those benefits are distributed uniformly among society’s members…
Why do government policymakers often face a trade-off between efficiency and equity?
Government policymakers face a trade off problem between efficiency and equity, if they increase the income of the poor by taking a substantial part from the income of the rich.
What is the big tradeoff the big tradeoff is the tradeoff between?
The most essential trade-off in economics is that between efficiency and equity. Okun (1975) dubbed it the big trade-off and explained it by the metaphor of the leaky bucket: ‘The money must be carried from the rich to the poor in a leaky bucket.
How would you depict the trade-off between equity and efficiency on a graph?
How would you depict the trade-off between equity and efficiency on a graph? Inequality on one axis and social surplus on the other with a positively-sloped function.
What is the meaning of trade off in economics?
The term “trade-off” is employed in economics to refer to the fact that budgeting inevitably involves sacrificing some of X to get more of Y. With a fixed amount of savings, one can buy a car or take an expensive vacation, but not both. The car can be “traded off” for the vacation or vice versa.
What do u mean by trade off?
Definition of trade-off 1 : a balancing of factors all of which are not attainable at the same time the education versus experience trade-off which governs personnel practices— H. S. White. 2 : a giving up of one thing in return for another : exchange. Other Words from trade-off Synonyms Learn More About trade-off.
What is efficiency trade-off?
The equity-efficiency tradeoff is when there is some conflict between maximizing pure economic efficiency and achieving other social goals. Most economic theory uses a utilitarian approach as its ethical framework, but this may conflict with other moral values that people hold, leading to an equity-efficiency tradeoff.
Which is better efficiency or equity?
Efficiency may lead to less equity Each individual paid the same amount – regardless of their income. It was considered to be economically efficient because a poll tax doesn’t distort economic behaviour. It has no impact on incentives to work because if you earn more, the tax you pay remains the same.
Is there a trade-off between equality and efficiency?
It was thought that there was a trade-off between equality and efficiency (Okun, 1975). More recently, Stiglitz (2012) emphasized the price of inequality: he suggests that inequality induces rent-seeking, which is bad for growth. On 25 September 2015, 193 UN Member States adopted the Sustainable Development Goals (SDGs) for 2030.
What is equity-efficiency tradeoff?
What is ‘Equity-Efficiency Tradeoff’. An equity-efficiency tradeoff exists whenever activity in a given market simultaneously increases productive efficiency and decreases distributive equity, or vice versa.
Is there a trade-off between reducing inequality and promoting growth?
The conventional view has always been that there is a trade-off between reducing inequality and promoting growth (Mirrlees, 1971; Okun, 1975). Even though the evidence is far from conclusive on this matter due to data limitations, economists have come up with various arguments to support the supposed trade-off.
What is the Big tradeoff?
Originally published in 1975, Equality and Efficiency: The Big Tradeoff is a very personal work from one of the most important macroeconomists of the last hundred years. And this new edition includes “Further Thoughts on Equality and Efficiency,” a paper published by the author two years later.