New Recording 60

Course Updates

• Course Three Details

  • Opens: March 18

  • Closes: March 20, 11 AM

• Quiz Details

  • Opens: Tomorrow (March 18)

  • Format: Negative mocking, 35 marks total

    • 5 True/False questions

    • 5 Multiple Choice questions

  • Only one attempt allowed. Completion of video required before quiz.

Recap of Lesson One

• Topics Covered

  • Institutions and power distribution

    • Importance of institutions in evaluating outcomes via efficiency and fairness.

  • Prisoner's Dilemma:

    • Discussed allocation efficiency and established that it was not Pareto efficient.

    • Pareto efficiency requires no allocation can improve one player without worsening the other.

Efficiency in the Prisoner's Dilemma

• Graphical Representation

  • Comparison of allocations; dominance utilized to visualize preferred outcomes.

  • Consumers aim to maximize utility; preference towards higher consumptions shown graphically.

• Dominance

  • Points lying within a set dominate those outside it in terms of efficiency (Pareto efficiency).

Understanding Distribution and Fairness

• Pareto Criterion

  • Demonstrates efficiency but does not dictate the best allocations.

  • Fairness is subjective and separated from objective determinations of Pareto efficiency.

• Evaluation of Fairness

  • Based on outcomes' inequality and genesis

    • Substantive Judgments: Use of metrics like income distribution (GDP per capita, happiness measures) to assess outcomes.

    • Procedural Judgments: Evaluate fairness based on legitimacy and equal opportunity in acquisition.

    • Rolf's Perspective: Institutions should maximize payoffs to the worst-off in society to define fairness.

Model of Choice and Conflict

• Scenario Overview

  • Introduction of Angela (farmer) and Bruno (landowner).

  • Dynamics of power: Bruno can initially dictate Angela’s work hours.

• Institutional Changes

  • Later rules change, giving Angela more bargaining power and a stake in her output.

  • Effective policies govern land and distribution rights.

Angela's Production and Feasible Frontier

• Production Function Recap

  • Angela’s output depends solely on hours worked, illustrating the concept of diminishing marginal product.

• Feasible Frontier

  • Represents the trade-off between free time and work hours.

Preferences and Optimal Decision-Making

• Indifference Curves

  • Angela derives utility from grain and free time; preferences are marginalized over time.

• Optimal Consumption Point

  • Determined by where marginal rate of substitution (MRS) equals marginal rate of transformation (MRT).

Institutional Power Dynamics

• Role of Institutions

  • Institutions create frameworks for interaction and resource distribution.

• Power Struggles

  • The advantageous and disadvantaged roles of Angela and Bruno based on imposed rules and negotiations.

• Sustainability of Work

  • Consideration of health and sustainability factors into work hours and production.

Biological Survival Constraint

• Introduction of Survival Needs

  • Constraints define minimum grain consumption required for Angela’s survival for continued work.

  • Adjustment of hours worked impacts the minimum output required for sustaining living.

  • Overview of how work and survival needs mutually adjust production decisions and outputs.