Class 5: Maximizing society

1
Class 5 Maximizing societys sense of well being

• Economic theory models social behavior that
  achieves Pareto Optimum
• The key question
• Is the social construct we call Free Market
  Competition the best approach for achieving
  Pareto Optimum in the Medical Care Industry?

2
Kenneth Arrow Nobel Prize Recipient in Economics
- 1972

• Arrows 1963 article Uncertainty and the Welfare
  Economics of Medical Care created the field of
  health economics.
• Three concepts presented in this article
• The nonmarketability of bearing suitable risks
  and imperfect marketability of information.
• Survey of special characteristics of the medical
  care market.
• Uncertainty and the Theory of Ideal Insurance.

3
The study of Economics

• Is a social science
• Is focused on so-called rational choices
  individuals and groups make regarding their well
  being
• Makes the assumption that the resources a society
  holds are limited while its needs are unlimited
• Has the goal of helping social groups use limited
  resources in ways that achieve the greatest
  possible sense of well being

4
Economic thinking is built around three key
questions

• What products or services to produce?
• How to produce these products or services?
• For whom are these products and services produced?

5
As a social science Economics started by
measuring social welfare and progressed by
theorizing how a society might maximize its
social welfare

• In the early 20th century, concepts leading to a
  construct called Pareto-optimality became the
  accepted model that economist used when
  theorizing about social welfare
• The single elegant condition for achieving Pareto
  optimal was That balance where someones well
  being could not increased without decreasing
  anothers.

6
A 5-step progression from individual consumers to
an entire societys welfare

• Consumer behavior
• Production behavior
• A depiction of the whole society
• Reducing the whole society into an Edgeworth
  Box
• Comparing a point on Edgeworths contract curve
  to maximizing a social welfare function