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Class 5: Maximizing society’s sense of well being

Class 5: Maximizing society’s 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?.

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Class 5: Maximizing society’s sense of well being

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  1. Class 5: Maximizing society’s 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 • Arrow’s 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 someone’s well being could not increased without decreasing another’s.

  6. A 5-step progression from individual consumers to an entire society’s welfare • Consumer behavior • Production behavior • A depiction of the whole society • Reducing the whole society into an ‘Edgeworth Box’ • Comparing a point on Edgeworth’s contract curve to maximizing a social welfare function

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