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Week 5: September 24-28

Efficiency vs. Equality

I chose to blog about this topic since it relates to the content of my macroeconomics class.

According to Gregory Mankiw, professor of economics at Harvard University, efficiency and equality are defined as follows:

Efficiency: “the property of a resource allocation of maximizing the total surplus received by all members of society”

Equality: “the property of distributing economic prosperity uniformly among the members of society”

Society faces a trade-off between these two properties. Is it better to get the most out of society’s scarce resources, or is it best to have a uniform distribution of prosperity among society members? Economists disagree.

Consider the United States’ progressive tax system. Wealthier Americans are taxed at higher rates than poor Americans. In this way, income is redistributed.¬†Some believe this system is beneficial, while others think it is unfair. However, it is up to the individuals of a society to make their own decisions by thinking critically.

Source: Mankiw, Gregory. Principles of Macroeconomics. 8th ed., Cengage Learning, 2018.

2 Comments

  • Emily Harvey

    I found the thing about wealthy Americans getting taxed more than the poor very interesting. I have seen several studies and research that show that if you take into account incomes that the poor are actually being taxed more of their money. I was wondering if that was just the general belief and if the wealthy are, based on income, getting taxed more?

  • Steven Greenlaw

    Natalie,

    What does Mankiw’s definition to efficiency mean to you?

    Is it equality that contrasts with efficiency, or is it equity? What’s the difference?

    Emily,

    I think you are talking about tax rates (taxes paid as a percentage of one’s income), and Natalie is talking about taxes paid. You can both be right!
    Taxes are considered regressive if the rate one pays goes down as your income goes up. Progressive means the opposite Proportional means everyone pays the same percentage of their income in taxes.

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