Special Topic 2. The Economics of Social Security.

Business

Voluntary exchange always make both the parties better off, otherwise the exchange would have not taken place. Now if we work with this Milton Friedman type understanding of welfare we can say here that both will become better off here and welfare is increased.

Wage rates reflect productivity it is true. But also the rise in wage rates without a rise in productivity can be explained as a rise in the demand for the worker of a certain type. Here the demand for the painters might have risen and for that ages might rise even if the productivity remains same.

When a person's opportunity cost is $ 6 per hour then his total cost in flight will be $ 116 but his total cost in bus will be $ 100. Hence bus is cheaper for him. Now for someone whose opportunity cost is $ 10, for him total cost in flight will be $ 120 and total cost in but will be $ 120, hence he will be indifferent in travelling in bus or flight. And someone whose opportunity cost is very high $ 14 per hour for him total cost in flight will be $ 124 and his total cost in bus will be $ 140. It implies for him flight will be cheaper.

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