Reference no: EM133187218

If the utility that one individual gains by poking another person in the eye is greater than the suffering caused, then a purely utilitarian approach would permit or even encourage the eye poking to maximize total social utility. However, almost all people would agree that this violates basic morality and leads to an inequitable outcome for the eye-poking victim.

In a more complicated example, it is often the case that the greatest economic gains-and thus the greatest total utility-occurs when the most successful businesses and entrepreneurs earn higher incomes than others, to encourage more productive behavior. However, this may lead to very unequal incomes. When this happens, policymakers may decide that it is better for society to redistribute some income from higher- to lower-income individuals for the sake of fairness, even though this might reduce the utility of the high-income earners or even society as a whole.

This is the most common form of the equity-efficiency tradeoff, though it also can involve the production, distribution, and consumption of all kinds of goods and services rather than just incomes.