Welfare economics is the branch of economics developed by eminent scientists and economists like Alfred Marshall and Vilfredo Pareto. During the 1910 – 1920 many books were written by these famous economists who are the foundations for today’s modern world of economics. One of these designed by Pareto is the concept of welfare economics theory. Since then it came to be known as Pareto efficiency which is used many economists as the ideal efficiency goal. The basic of this welfare economics assignment efficiency is that the economic situation is only optimal if no individuals are made better off without making someone else worse off.
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The migrants of economics graduation and post-graduation including MBA studies have this welfare economics writing as their part of the study. This involves the implementation of micro-economics in the welfare of society. It is one of the topics of normative economics studies. In-Depth knowledge of economics is needed to write the welfare economics assignment.
Economics is the study of goods and services. This involves both the micro and macroeconomics. Microeconomics deals with the essential elements like the market, agents, interactions between the two and the outcome of it. Macroeconomics analyzes the entire production, consumption, savings and the issues related to it. Also, economics is differentiated by normative economics which is what the reasonable expectations of any policy regarding “what ought to be” and the positive economics emphasizes “what is” on the ground level. Welfare economics assignment writing should mainly focus on microeconomics and normative economics.
Objectives of welfare economics:
The main aim of welfare economics is all about creating some common criteria of economic welfare. These criteria should be able to find and separate the needs and wants of all segments of the population. This is because what is sufficient for one person is deficient for another. Hence it is impossible to establish single economic welfare criteria all the people. It also studies the distribution of resources and the means of how it affects the well –being of the whole society.
Welfare economics can also be described as proper resource allocation which could maximize the social welfare. The issues of welfare economics could be beneficial during the development of any public policy. This is where the normative economics comes to play with what it ought to be of the policy implementations and the ground level of execution with favorable economics.
Two methods of measuring efficiency in social welfare:
Hence to measure the social welfare the economists have two fundamental approaches. They are the New welfare economics approach and the neoclassical one.
The Neoclassical approach:
Pigou, Edgeworth, and Sidgwick formulated this old method of calculating the efficiencies of social welfare. They wrote this method in the Benthamite tradition. It is based on the cardinal utility which is the mathematical calculations of the benefits of the schemes and policies intended for a particular segment of the population. This measure is still concerned with the distribution of income which is the distributive efficiency. This will not include the final utilities in normative terms of economics.
This method is based on the following assumptions:
• The utility is cardinal, i.e. quantitatively measured by judgment and observation.
• All the preferences are exogenously given and stable always.
• More of consumption makes smaller and smaller increase in utility or diminishing marginal utility.
• All the individuals in any segment of the population have interpersonally commensurable utility.
The New Welfare Economics:
This method treats the differences between the efficiency aspect of the discipline and the distribution aspect separately. The distinguished Pareto efficiency and Kaldor-Hicks compensation tests are used to assess the effectiveness. Social welfare function specification will cover the ability of the income distribution. This method discards the cardinal measures of the utility and replaces it with ordinal utility. This specifies which option is better without going into the aspects of how much better or how better one is over the other. With the Pareto capability, the ideal state of affairs can only come out if all the below mentioned four criteria are fulfilled.
Four criteria for an ideal state of affairs for reaching the efficiency goal:
- The marginal rate of transformation in production should be the same for all the products. This is made possible by not increasing the production of any good without reducing the output of other assets to maintain the equilibrium.
Negatives of New Welfare economics:
- To achieve the goal of no consumer can be made better off without making others worse off, the marginal rates of substitution in consumption are made identical for all consumers.
Even though there are many factors for increasing the efficiency of the social welfare schemes and policies by this method of New Welfare Economics or Pareto efficiency may differ in the following conditions:
• Inefficiencies in the factor allocations of the production theory basics
• Certain types of tariffs and taxes
• Declining average costs in the long run due to natural monopoly
• Principle-agent problems
• Asymmetric information
• Imperfect market structures like monopoly, monopsony oligopsony, monopolistic, oligopoly competitions.
• Price distribution and skimming
• Social cost with market failures and externalities
The scientific definition of welfare economics:
To define welfare economics scientifically, it is one who evaluates the economic prosperity and the economic welfare of the community. This is done using the microeconomics techniques and approaches to provide the equilibrium between the allocation of the resources and economic efficiency. In general terms, it can be explained as the welfare economics assignment studies of how the policies influence the prosperity of the society. By analyzing the costs and the benefits, the theoretical principles for particular instruments of public economics are obtained. The main criteria for the evaluation of the commonwealth are mostly subjective. Its correctness cannot be determined without a doubt. But with logic and knowledge, the ‘acceptable level’ of public agreement on these criteria can be got.
Hence the social welfare economics assignment should be done with in-depth knowledge and with proper cross-referring for getting the higher grades for your better career. Related Link: Economics Writing Assignment Help