Efficiency Vs Equity

Here is a good explanation from Mark Thoma of what we do when we feel that allocating goods or services efficiently is not equitable.

…the price of water is low enough so that most people can afford it as part of their budgets (and we make public sources widely available), it doesn’t bust the budget to buy water and the price system can be used to prevent wasteful usage. But if the price were so high that there were people who could not afford it at all or could not afford it without substantial sacrifice, then we would have to transfer money from the rich to the poor to make sure people had enough water to meet their basic needs. We do this now with energy – people who cannot afford to heat their houses in the winter are subsidized to ensure their basic energy needs are met. We don’t think it’s fair that someone should have to suffer the cold because they cannot afford to heat their house without sacrificing other critical needs.

Please read the rest of his post at Economist’s View. Do you agree with his list? Are there any goods or services that you would add? Are there any that you would remove?

Income Inequality

Canadian Perspective:


Two perspectives on American inequality:

George Will: How income inequality benefits everybody