10.5 Efficiency and Equity

The welfare of a society’s citizens depends on how society deals with efficiency (the size of the pie) and equity (the division of the pie). The outcome depends on individual choices and on government actions.

Role of the Government

By altering how efficiently society produces and distributes goods and the endowment of resources, governments help determine how much is produced and how goods are allocated. By redistributing endowments or by refusing to do so, governments, at least implicitly, are making value judgments about which members of society should get relatively more of society’s goodies.

Virtually every government program, tax, or action redistributes wealth. Proceeds from a British lottery, played mostly ...

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