Question

Explain the equity-efficiency trade-off in economics.

Answer 1

At any point of time, all the resources in a society may be relatively insufficient. Whatever we need is not available at that time. So we need to set prorites and then supply the resources. While dealing with that situation, we are taking equity and efficiency into concern. When the resources are equally distributed amoung the people in society, it defines the Equity in the economy. The Efficiency is creating the best within scarce resources at the possible cost. The equity concern about the distribution of economic resource and at the same time the efficiency refers to the size of economic resource. After the distribution of resources we can see the trade-off between equity and efficiency. This trade-off is reffered as central principle in economics. Most of the social welfare measure that we undertake will aimed at equity and efficiency. There may be the situations that the equity compromise for the efficiency and also having other cases that efficiency compromise for equity. Basically equity - efficiency trade off works for the overall well-being of society.