Micro Economics Essay Example | Topics and Well Written Essays - 1000 words - 5

Micro Economics - Essay Example According to the Pareto principle social welfare definitely augments only if the benefit of any member of society increases and the welfare of no one falls. Actually when the Pareto criterion is strictly spoken it can be considered as simply an aggregation and decision rule and which could be enforced to non-utility. In reality the original distribution of income and wealth is generally taken as if it is given and alterations in either income or wealth cannot be measured beyond the need of changes themselves satisfy the Pareto criterion. The possible Pareto criterion, involving the gains associated to some alteration to outbalance the losses induced by it, is a less protective criterion. The Pareto principle by itself does not affirm the conclusion that any alteration from a non-Pareto-optimal position to a Pareto-optimum is an improvement. For this, economists rely on the compensation principle. On the other hand this principle itself can be questioned. Economists actually stress that the compensation required in demonstrating a potential Pareto improvement should be handled as hypothetical. But, now the issue is with regard to what is this potential Pareto improvement (PPI)? The potentiality of the principle is regarded as immaterial for its being an improvement? Many economists attempt to instill a PPI with some quasi-physical meaning. They indicate that a PPI, though not the same to an increment in social welfare, nonetheless still establishes an increase in the dimension of the cake from which welfare is deduced, or the capability of the oven in which the cake is baked. These economists state that a positive result of the compensation test depicts an increase in aggregate real income (Kaldor 1939: 550, 551). At the same time economists like Chipman (1987, pp. 524- 530); Kaldor (1939, p. 550), believe in the productive potential of the economy and Boadway and Bruce (1984, p. 97), Hennipman (1976, p. 476); Hicks (1981,