Say a policy change makes some consumers better off but others worse off.  With just this information, would the economist say that the policy increases social welfare? 

 

Why? 

 

Suppose that if all cars have catalytic converters on them, air quality in a city will increase by 20%.  A person's WTP for this improvement in air quality is $300 a year.  To have a catalytic converter on their car, a person has to pay $225 a year.  What does requiring people to have catalytic converters on their cars do to this person's welfare?

Nicholas Kaldor argued that a certain principle can be used to determine if a policy should or shouldn't be adopted.  What principle is that?