ABSTRACT

We all personally make decisions on how to allocate our limited resources for our families and ourselves. If we are ‘utility maximisers’ (see Chapter 2) we aim to maximise our expected welfare by choosing to buy the goods and services that should achieve this end. To do this we check that there is no alternative mix of goods we could consume that would increase our welfare. Once this is achieved we cannot increase our welfare simply by changing the mix of goods and services we consume. For the formal treatments of efficiency in production and exchange see Boxes 9.1-3. By analogy, when a decision is made on behalf of society to provide some services collectively, the aim may be to maximise the welfare of the whole of society, and in a similar way to ensure that no change in the mix and pattern of consumption of goods and services would increase overall welfare.