CONCEPT

OF
WELFARE ECONOMICS

SUBMITTED TO: SUBMITTED BY:

MR. DIGVIJAY PULKIT GOYAL
KATOCH (BBA LLB HONS.)
 ACKNOWLEDGMENT

The success and final outcome of this assignment required guidance

and assistance from many people and I am extremely fortunate to
have got this all along the completion of our assignment work. I
express my gratitude to our Vice Chancellor and my subject teacher
for giving me this opportunity to do work on this topic and learn so
much along the way. Ever encouraging seniors helped me at every
step of the research.
Furthermore, I would like to acknowledge my and the staff of the
Himachal Pradesh National Law University, who gave me the
permission to access to all the required equipment in completing this
project. This assignment could not have been completed without each
one’s help.
WELFARE ECONOMICS

A) CRITERIA OF SOCIAL WELFARE

o GROWTH OF GNP AS WELFARE CRITERIA
o BENTHAM’S CRITERION
o THE PARETO’S OPTIMALITY CRITERION
o THE KALDOR-HICKS “COMPENSATION CRITERION”
o THE BERGSON CRITERION “SOCIAL WELFARE
FUNCTION”

B) MAXIMISATION OF SOCIAL WELFARE

o DERIVATION OF GRAND UTILITY POSSIBILITY FRONTIER
o DETERMINATION OF WELFARE MAXIMISING STATE

C) DETERMINATION OF WELFARE MAXIMISING OUTPUT-MIX,

COMMODITY DISTRIBUTION AND RESOURCE ALLOCATION

D) WELFARE MAXIMISATION AND PERFECT COMPETITION

E) CRITIQUE AND EXTENSIONS

o EXTENSION TO MANY FACTORS, PRODUCTS AND
CONSUMERS.
o CORNER SOLUTIONS
o EXISTENCE OF COMMUNITY INDIFFERENCE CURVES
o ELASTIC SUPPLY OF FACTORS
o JOINT AND INTERMEDIATE PRODUCTS
o DECREASING RETURNS TO SCALE
o EXTERNALITIES IN PRODUCTION AND CONSUMPTION
o KINKED ISOQUANTS
o CONVEX ISOQUANTS
o INCREASING RETURNS TO SCALE
o INDIVISIBILITIES IN PRODUCTION PROCESSES
WELFARE ECONOMICS is concerned with the evaluation of alternative
economic situations (states, configurations) from the point of view of society’s
Well Being.
To illustrate this definition assume that the total welfare in
country is W, but given the factor endowments (resources) and the state of
technology, suppose that this welfare could be larger, for example W*. The
tasks of welfare economics are:
(a) To show that in present state W<W*, and
(b) To suggest the ways of raising W to W*.

A) CRITERIA OF SOCIAL WELFARE

1) Growth of GNP as A Criterion of Welfare.
Adam Smith implicitly accepted the growth of the wealth of society, that
is, the growth of the gross national product, as a welfare criterion. He
believed that economic growth resulted in the increase of social welfare
because growth increased employment and the goods available for the
consumption to the community. To Adam Smith, Economic Growth
meant increasing W to W*.
The growth criterion implies to the acceptance of the
status quo of income distribution as ‘ethical’ or ‘just’. Furthermore,
growth may lead to a reduction in social welfare, depending on who
avails mostly from it. However, the growth criterion highlights the
importance of efficiency in social welfare. Given that social welfare
depends on the amount of goods and services (as well as on their
distribution), efficiency is prerequisite for the maximisation of level of
welfare. We note here that economic efficiency can be defined
objectively, and the modern welfare economics is mainly concerned with
the examination (comparison) of the (Pareto)-efficiency of different
economic situations. However, efficiency, although a necessary
condition, is not sufficient to guarantee the maximisation of social
welfare. Efficiency does not dispose of the need of having an ethical
standard of comparing alternative economic states.