While studying for a seminar in International Competitiveness course at TiU, I encountered with this idea on inequality. As far as my knowledge in economics is concerned, I have never learned about inequality from this "new" perspective. In Microeconomics I, all students who studied economics and business should have learned about partial equilibrium in a market. When price and quantity is set in equilibrium, there is producer and consumer surplus.
Consumer surplus is expressed as the value of demand satisfied at lower price than was expected if equilibrium was not reached. But, notice that the equilibrium price does not allow consumers with lower willingness-to-pay to consume the goods. Thus, people who are not able to pay the price does not benefit from perfect market equilibrium. Of course, since the analysis is pretty general, people with lower willingness to pay might not be the poor, but just the people who does not value the good as much. However, the idea was a very simple aspect of explaining inequality.
People who can not afford the good and they have no surplus at all from this market. The poor will always have low willingness-to-pay, so they will have the least surplus in most of markets. Serious economists might think it is a good humor in its simplicity, but I really like this generalization of microeconomic theory to inequality :)
/Market of yogurt: As shown above, the equilibrium price will not allow me to have my favorite food if my demand evaluation is P_p while I can have consume more if it is P_r at the equilibrium price P*/ :))
No comments:
Post a Comment