Draw someone else in the class and see if we can guess who
What does efficiency mean to you in just a few words?
Equity is the fairness of an economic situation or outcome. Equity is a matter of opinion. Efficiency refers to a situation where an economy cannot make another person better off without making someone else worse off, i.e is allocatively efficient (a condition of allocative efficiency is that all resources are used as efficiently or productively as possible). Many government measures aim to improve equity, but may come at the cost of economic efficiency.
Efficiency and Equity
The New Zealand Tax System
- Is fair and efficient
- Is unfair and inefficient
- Is fair, but inefficient
- Is unfair, but efficient
Our progressive tax system is considered 'fair' or equitable since those on higher incomes pay a bigger proportion in tax, but this is not efficient, since it acts as a disincentive for people to work harder or longer hours, i.e. resources are not allocated efficiently or as productively as possible. Another example of equity and efficiency tradeoff: Some policies may be seen as both fair and increasing efficiency. Taxes on cigarettes internalise the externality costs of smoking (e.g. healthcare) on smokers. This may be seen as fair (since the costs have been passed back to those creating them), and also moves the market for cigarettes toward the allocatively efficient equilibrium where MSC= MSB.
The NZ Tax System
How might you reduce MSC of recycling in NZ? Be prepared to explain how it's efficient and equitable