EFFICIENCY AND EQUITY IN ECONOMICS

Efficiency and Equity in Economics

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Table of Contents

Introduction3

Discussion3

Conclusion8

References9

Appendix10

Efficiency and Equity in Economics

Introduction

The two most important conditions of mixed economy for microeconomics are equity and efficiency, which are usually persuaded by the government policies and desired by the general public. The redistribution of income has a significant impact on society because the policies needed to achieve it, resulted in misallocation of resources. The main idea in this context is the trade-off between efficiency and equity.

Discussion

In economics, efficiency can be defined as the maximum utilization of scarce resources. Moreover, equity is the equal distribution of scarce resources among the members of society. In reality, when government formulates policies, efficiency and equity often creates conflict because when the government tries to distribute these scarce resources equally, it gets smaller (Carraro, 2000, pp. 8-360).

When the society is competent to attain the highest level of satisfaction from obtainable or existing resources then it can be referred to efficiency. The efficiency can increase the amount of satisfaction attained by the members of society, but cannot change the way of limited resources is utilized by the society. The problem of persistent shortage can be address appropriately by using the scare resources to gratify the needs and wants of the people within society. The indication of efficiency is the impartiality between the price of demand and supply for a certain market; whereas there are no such widespread indicators for obtaining this goal of efficiency. However, theoretically the concept of efficiency can be demonstrated but in practice it is very difficult to achieve because of the complexity of the economy. For instance, the price regulation related to cable TV, or institute laws and regulations against driving (Cohen, 2001, pp. 11-190).

Equity is defined as the equal distribution of economic prosperity among society. The equal allocation of resources such as wealth and income in a society is referred as equity. It is generally perceived that everyone encourage equal and fair distribution. The debate of equity in a society arises because few people argue that equity can only be obtained when everyone posses equal level of wealth and income as they require. Furthermore, it is highly affirmed that the scarce resources must be distributed according to the principles of fairness. The standard of fairness can be equality, needs, or productive value of resources. These standards of equity or fairness can be seen in the sphere of normative economics. For instance, provide poor people coupon so they can buy food, or impose tax based on income.

There are two foremost goals of equity and efficiency in microeconomic are broadly considered as commendable and beneficial. Both goals facilitated in the well-being of the society; as well as efficiency is much better than inefficiency, and the state of equity is far better than the state of inequity. On the contrary, if one goal is attained it often restrict the pursuit of other goal. For instance, the policies that help in achieving efficiency may result in inequity, and ...