It could very well be that the other person values the coffee a lot more than I do, but because I have so much more disposable income than they do I am willing to pay more for it.
In doing this (for any resolution of the question), you're making a quantitative comparison of utility between people. That transformation, that $1 for me is the same as $1 for you, is not at all a given -- but it doesn't have to be given, either.
For example, the definition of an "efficient market" or the optimal level of production of some good both embed this assumption that willingness to pay equals utility.
You're neglecting that there are many possible definitions of 'optimal'. In fact, the fundamental theorems of welfare economics (https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfar...) -- which give us the "market equals optimum distribution" idea -- only give us a Pareto optimal outcome, such that there exists no redistribution of products that would make everyone happier.
Only when we start comparing utility between people can we talk about ways of selecting between Pareto optimums. For example, a market distribution where I owned everything as god-king would be a (morally reprehensible) Pareto optimum, since you couldn't make anyone else happier without leaving me relatively worse-off.
Am I right in thinking that the concept of a social welfare function - which gives us a chance to specify that having you or anyone else as God-king is not the solution we want - is also considered part of welfare economics?
Comments
In doing this (for any resolution of the question), you're making a quantitative comparison of utility between people. That transformation, that $1 for me is the same as $1 for you, is not at all a given -- but it doesn't have to be given, either.
You're neglecting that there are many possible definitions of 'optimal'. In fact, the fundamental theorems of welfare economics (https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfar...) -- which give us the "market equals optimum distribution" idea -- only give us a Pareto optimal outcome, such that there exists no redistribution of products that would make everyone happier.
Only when we start comparing utility between people can we talk about ways of selecting between Pareto optimums. For example, a market distribution where I owned everything as god-king would be a (morally reprehensible) Pareto optimum, since you couldn't make anyone else happier without leaving me relatively worse-off.
Am I right in thinking that the concept of a social welfare function - which gives us a chance to specify that having you or anyone else as God-king is not the solution we want - is also considered part of welfare economics?