Microeconomics Question from Walter E. Williams:Edit
Give brief (a sentence or two) comments to the following:
- (a) Is life priceless? What evidence can you offer to support your contention?
- (b) What do the concepts of externality and property rights have to do with allocation of resources?
- (c) A jet plan can fly across the U.S. three hours faster than a propeller plane. Which is more efficient?
- (a) No. Juries in wrongful death cases place a value on lost life daily. Life insurance packages also allow people to price their own lives. Historically, military leaders have made tradeoff decisions between capital- and human-intensive strategies that reveal an implicit shadow price on soldiers' lives.
- (b) Without externalities, the equilibrium allocation is pareto optimal. When externalities exist, it can be resolved through bargaining where property rights are well defined and enforceable, provided that transactions costs are not prohibitively high.
- (c) It depends on preferences and the opportunity cost of time. A person who has a low opportunity cost of time would be efficient in choosing the slower (cheaper) method of transportation. Since we do not know the relative costs of the two forms of transportation nothing more could be said. If each travel method has the same costs, efficency would appear to be in the faster method.
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