1.

Welfare eco definition nature and scope Many writers of the early days defined economics as "a science of wealth". Adam Smith commonly know as the father of modern economics, defined economics as "An enquiry into the nature and causes of wealth of nations."These definitions were defective because they gave much importance to wealth. As wealth is not everything, it only leads to achieve welfare of human. Therefore it is man an which is the aim all of the economic activities. Professor Dr. Alfred Marshall was the first economist who gave a logical definition of economics. He defined economics as: "A study of mankind in ordinary business of life, it examine that part of individual and social actions which is closely related with attainment and use of material requisites" CHARACTERISTICS OF DEFINITION: This definition gave a new direction to the study of economics. Following are the important characteristics of definition. 1. A Social Science-This Definition makes economics a social science. It is a subject that is concerned with the people living in society. According to Marshall, as the behavior of human beings is not same all the time therefore principles of economics cannot be formulated like the laws of sciences. Further laws of economics are not as exact as the laws of natural sciences. For this reason it is a social science. 2. Study Of Man- Economics is related to man; therefore it is living subject. It discusses economic problems and behavior of man. According to Marshall it studies the behavior of man In ordinary business of life. 3. Wealth As A Means Of Material Well Being-According to Marshall, wealth is not the ultimate objective of human activities and therefore we do not study wealth, for the sake of wealth. Therefore according to this definition we study wealth as a source of attainment of material welfare. 4. Economics And Welfare-This definition makes economics a welfare oriented subject. We are concerned only with those economic activities which do not promote material welfare of human beings are out of the scope of economics. CRITICISM "Robbins and other many economists severely criticized this definition on following grounds." 1. Limited To Material Welfare-This definition limits the subject of economics to material welfare of people. But the subject of economics is not limited to the study of material welfare of human beings. In reality both material and non material aspects of wellbeing are studies in economics. 2. Vague Concept of Welfare-The concept of welfare used in this definition is also not clear. The welfare of human beings is not limited to the attainment of material requisites. There are many other factors which affect the human welfare. Further the word "welfare" has different meaning for different persons and different societies. Therefore we cannot define economics using an unclear concept of welfare. 3. Limited Scope-This definition has made the scope of economics limited. Only those activities are studied in economics which are aimed at the attainment of material requisites of well being. Further it ignores the economic activities of a person not living in society. Attainment of non material requisites of

human well being fall out of the scope of economics. This division of material and non material aspects of human welfare is not correct. 4. Economics And Welfare-According to Robbins the study of economic activities on the basis of welfare is not good. It is not the duty of an economist to pass verdict that what is conducive to welfare and what is not. Thus according to Robbins "Whatever Economics is concerned with, it is not concerned with causes of material welfare as such. 2. Distinction between normative and positive eco

Positive economics (sometimes called Descriptive Economics) is the study of economic reality and why the economy operates as it does. It is biased purely on facts rather than opinions. This type of economics is made up of positive statements which can be accepted or rejected through applying the scientific method. "Americans bought five million CDs last year" is a positive statement - a simple declaration of fact. Normative economics (also called Policy Economics) deals with how the world ought to be. In this type of economics, opinions or value judgments - known as normative statements - are common. "We should reduce taxes" is an example of a normative statement. A Normative Theory expresses a judgment about whether a situation is desirable or undesirable, and is based upon some moray or standard. The world would be a better place if the moon were made of green cheese, is a normative statement because it expresses a judgment about what ought to be. Notice that there is no way of disproving this statement. If you disagree with it, you have no sure way of convincing anyone, who believes the statement, that it is incorrect. A Positive Theory expresses an opinion on a condition, assuming what is, and that contains no indication of approval or disapproval and is not based on any standard. Notice that a positive statement can be incorrect. The moon is made of green cheese, is incorrect, but it is a positive statement because it is a statement about what exists. Positive Statements-Positive statements are objective statements that can be tested or rejected by referring to the available evidence. Positive economics deals with objective explanation and the testing and rejection of theories. For example:

A rise in consumer incomes will lead to a rise in the demand for new cars. A fall in the exchange rate will lead to an increase in exports overseas. More competition in markets can lead to lower prices for consumers. If the government raises the tax on beer, this will lead to a fall in profits of the brewers. A reduction in income tax will improve the incentives of the unemployed to search for work. A rise in average temperatures will increase the demand for chicken. Poverty in the UK has increased because of the fast growth of executive pay.

Normative Statements-Normative statements express an opinion about what ought to be. They are subjective statements rather than objective statements i.e. they carry value judgments. For example:

The level of duty on petrol is too unfair and unfairly penalizes motorists. The London congestion charge for drivers of petrol-guzzling cars should increase to 25 - three times the current charge.

The government should increase the national minimum wage to 6 per hour in order to reduce relative poverty. The government is right to introduce a ban on smoking in public places. The retirement age should be raised to 75 to combat the effects of our ageing population. The government ought to provide financial subsidies to companies manufacturing and developing wind farm technology.

Positive Economics is independent of any ethical position or normative judgement. It deals with "what is" versus "what ought to be." In other words, objective facts. Normative Economics is not independent of positive economics. It is the opinions generated on positive facts. In other words, opinions that have not received widespread consensus

4.Human development index and its significance The Human Development Index (HDI) is a composite statistic used to rank countries by level of "human development", taken as a synonym of the older term standards of living or Quality of life, and distinguish "very high human development", "high human development", "medium human development", and "low human development" countries. HDI was devised and launched by Pakistani economist Mahbub ul Haq and Indianeconomist Amartya Sen in 1990.[1] The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education, and standards of living for countries worldwide. It is a standard means of measuring well-being, especially child welfare. It is used to distinguish whether the country is a developed, a developing or an underdeveloped country, and also to measure the impact of economic policies on quality of life. There are also HDI for states, cities, villages, etc. by local organizations or companies. The origins of the HDI are found in the annual Human Development Reports of the United Nations Development Programme (UNDP). These were devised and launched by Pakistani economist Mahbub ul Haq in 1990 and had the explicit purpose "to shift the focus of development economics from national income accounting to people centered policies". To produce the Human Development Reports, Mahbub ul Haq brought together a group of well-known development economists including: Paul Streeten, Frances Stewart, Gustav Ranis, Keith Griffin, Sudhir Anand and Meghnad Desai. But it was Nobel laureate Amartya Sens work on capabilities and functionings that provided the underlying conceptual framework. Haq was sure that a simple composite measure of human development was needed in order to convince the public, academics, and policymakers that they can and should evaluate development not only by economic advances but also improvements in human well-being. Sen initially opposed this idea, but he went on to help Haq develop the Human Development Index (HDI). Sen was worried that it was difficult to capture the full complexity of human capabilities in a single index but Haq persuaded him that only a single number would shift the attention of policy-makers from concentration on economic to human well-being.[2][3] The Human Development Index has been criticised on a number of grounds, including failure to include any ecological considerations, focusing exclusively on national performance and ranking (although many national Human Development Reports, looking at subnational performance, have been published by UNDP and othersso this last claim is untrue), not paying much attention to development from a global perspective and based on grounds of measurement error of the underlying statistics and formula changes by the UNDP which can lead to severe misclassifications of countries in the categories of being

a 'low', 'medium', 'high' or 'very high' human development country.[21] Other authors claimed that the Human Development Reports "have lost touch with their original vision and the index fails to capture the essence of the world it seeks to portray".[22] The index has also been criticized as "redundant" and a "reinvention of the wheel", measuring aspects of development that have already been exhaustively studied.[23][24] The index has further been criticised for having an inappropriate treatment of income, lacking year-to-year comparability, and assessing development differently in different groups of countries.[25] Economist Bryan Caplan, known for his anarcho-capitalist views expressed in his books, has criticised the inclusion of schooling in HDI with argument that: "[...] a country of immortals with infinite per-capita GDP would get a score of .666 (lower than South Africa and Tajikistan) if its population were illiterate and never went to school."[26] He argues, "Scandinavia comes out on top according to the HDI because However, there has been one lament about the HDI that has resulted in an extending of its geographical coverage: David Hastings, of the United Nations Economic and Social Commission for Asia and the Pacificpublished a report geographically extending the HDI to 230+ economies, whereas the UNDP HDI for 2009 enumerates 182 economies and coverage for the 2010 HDI dropped to 169 countries.[35][36] 5. Pareto optimality principle Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto (18481923), an Italian economist who used the concept in his studies of economic efficiency and income distribution. In a Pareto efficient economic system no allocation of given goods can be made without making at least one individual worse off. Given an initial allocation of goods among a set of individuals, a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement. An allocation is defined as "Pareto efficient" or "Pareto optimal" when no further Pareto improvements can be made. Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society. An economic system that is not Pareto efficient implies that a certain change in allocation of goods (for example) may result in some individuals being made "better off" with no individual being made worse off, and therefore can be made more Pareto efficient through a Pareto improvement. Here 'better off' is often interpreted as "put in a preferred position." It is commonly accepted that outcomes that are not Pareto efficient are to be avoided, and therefore Pareto efficiency is an important criterion for evaluating economic systems and public policies. If economic allocation in any system is not Pareto efficient, there is potential for a Pareto improvementan increase in Pareto efficiency: through reallocation, improvements to at least one participant's well-being can be made better without reducing any other participant's well-being. In the real world ensuring that nobody is disadvantaged by a change aimed at improving economic efficiency may require compensation of one or more parties. For instance, if a change in economic policy dictates that a legally protected monopoly ceases to exist and that market subsequently becomes competitive and more efficient, the monopolist will be made worse off. They can also lead to incentive distortions over time since most real-world policy changes occur with players who are not atomistic, rather who have considerable market power (or political power) over time and may use it in a game theoretic manner. Compensation attempts may therefore lead to substantial practical problems of

misrepresentation and moral hazard and considerable inefficiency as players behave opportunistically and with guile.

Hick Kaldor compensation principle KaldorHicks efficiency, named for Nicholas Kaldor and John Hicks, also known as KaldorHicks criterion, is a measure of economic efficiency that captures some of the intuitive appeal of Pareto efficiency, but has less stringent criteria and is hence applicable to more circumstances. Under Kaldor Hicks efficiency, an outcome is considered more efficient if a Pareto optimal outcome can be reached by arranging sufficient compensation from those that are made better off to those that are made worse off so that all would end up no worse off than before. Under Pareto efficiency, an outcome is more efficient if at least one person is made better off and nobody is made worse off. However, some believe that in practice, it is almost impossible to take any social action, such as a change in economic policy, without making at least one person worse off. Even voluntary exchanges may not be Pareto improving. Under ideal conditions, voluntary exchanges are Pareto improving since individuals would not enter into them unless they were mutually beneficial. However, a voluntary exchange would not be Pareto superior if external costs (such as pollution that hurt a third party) exist, as they often do. Using KaldorHicks efficiency, an outcome is more efficient if those that are made better off could in theory compensate those that are made worse off, so that a Pareto improving outcome results. For example, a voluntary exchange that creates pollution would be a KaldorHicks improvement if the buyers and sellers are still willing to carry out the transaction even if they have to fully compensate the victims of the pollution. The key difference is the question of compensation. KaldorHicks does not require compensation actually be paid, merely that the possibility for compensation exists, and thus does not necessarily make each party better off (or neutral). Thus, under KaldorHicks efficiency, a more efficient outcome can in fact leave some people worse off. Pareto efficiency requires making every party involved better off (or at least no worse off). While every Pareto improvement is a KaldorHicks improvement, most KaldorHicks improvements are not Pareto improvements. This is because, as the graph above illustrates, the set of Pareto improvements is a proper subset of KaldorHicks improvement, which also reflects the greater flexibility and applicability of the KaldorHicks criteria relative to the Pareto criteria. For example, in a society with two people, suppose initially Person A has 10 sheep and Person B has 100 sheep. If some policy change or other shock results with Person A ending up with 20 sheep and Person B with 99 sheep, this change would not be Pareto improving, since Person B is now worse off. However, it would be a KaldorHicks improvement, as Person A could theoretically give Person B anywhere between 1 and 10 sheep to accept this alternative situation. The Kaldor criterion is that an activity contributes to Pareto optimality if the maximum amount the gainers are prepared to pay to the losers to agree to the change is greater than the minimum amount losers are prepared to accept; the Hicks criterion is that an activity contributes to Pareto optimality if the maximum amount the losers would pay the gainers to forgo the change is less than the minimum amount the gainers would accept to so agree. Thus, the Kaldor test supposes that losers could prevent the arrangement and asks whether gainers value their gain so much they would and could pay losers to accept the arrangement, whereas the Hicks test supposes that gainers are able to proceed with the

change and asks whether losers consider their loss to be worth less than what it would cost them to pay gainers to agree not to proceed with the change. After several technical problems with each separate criterion were discovered, they were combined into the Scitovsky criterion, more commonly known as the "KaldorHicks criterion", which does not share the same flaws. The KaldorHicks criterion is widely applied in welfare economics and managerial economics. For example, it forms an underlying rationale for cost-benefit analysis. In cost-benefit analysis, a project (for example, a new airport) is evaluated by comparing the total costs, such as building costs and environmental costs, with the total benefits, such as airline profits and convenience for travelers. (However, as cost-benefit analysis may also assign different social welfare weights to different individuals, e.g. more to the poor, the compensation criterion is not always invoked by cost-benefit analysis.) The project would typically be given the go-ahead if the benefits exceed the costs. This is effectively an application of the KaldorHicks criterion, because it is equivalent to requiring that the benefits should be enough that those that benefit could in theory compensate those that have lost out. The criterion is used because it is argued that it is justifiable for society as a whole to make some worse off if this means a greater gain for others.

7 Why did communism fail? The fundamental error of communism was that it failed to recognise exactly what the human person is; any reorganisation of human society is bound to fail if there are errors in its most basic premise. Communist philosophy does not see the individual as an end in himself but merely as a component of something greater. Progress, or the raising of human happiness, cannot be attempted at the unwilling expense of the life or liberty of the individual. Capitalism will ultimately fail for the the same reason. It will be sustained longer because it usually goes hand in hand with some kind of respect for the freedom of the human person. Finally, both are materialisms and entirely neglect the spiritual aspect of human beings. A political philosophy not grounded in a holistic anthropology is doomed from day one. Please, don't take this as a plug for any religion, but simply as somethiBut some other reasons include the deceit of the Communist leaders. Once in power, Lenin, Stalin, the Ceausescu's in Romania, Kim Yong Il in North Korea, Mao and Castro all lived like royalty while the people had nothing. Nowadays, while Cubans have to do with very little, sometimes going without meat for weeks or months, Castro enjoys lobster and steaks. Hell, tourists eat better in Cuba than the Cubans themselves. Government operated stores have empty shelves while the "diplotiendas" which are stores only for tourists and foreign officials (and off limits to Cubans) are packed with goods. Another thing, humans have a very powerful inborn sense of freedom and Communism denies freedom. The ONLY thing I admire about Communism is its total annihilation of crime. An example is that there was virtually no crime in Soviet Russia. Once the Iron Curtain fell, crime and the Russian mafia flourished. Some people just deserve the regimes they live in. While Democracy may not be perfect, it definitely kicks Communism's a$$.ng I perceive and which time alone will cofirm or negate.

Markets and market failure

Market failure is a concept within economic theory describing when the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off. (The outcome is not Pareto optimal.) Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient that can be improved upon from the societal point-of-view.[1][2] The first known use of the term by economists was in 1958,[3] but the concept has been traced back to the Victorian philosopher Henry Sidgwick.[4] Market failures are often associated with information asymmetries,[5] non-competitive markets, principalagent problems, externalities,[6] or public goods.[7] The existence of a market failure is often used as a justification for government intervention in a particular market.[8][9] Economists, especially microeconomists, are often concerned with the causes of market failure and possible means of correction.[10] Such analysis plays an important role in many types of public policy decisions and studies. However, some types of government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources, sometimes called government failure.[11] Thus, there is sometimes a choice between imperfect outcomes, i.e. imperfect market outcomes with or without government interventions. But either way, if a market failure exists the outcome is not pareto efficient. Mainstream neoclassical and Keynesian economists believe that it may be possible for a government to improve the inefficient market outcome, while several heterodox schools of thought disagree with this [edit]Monopolies Agents in a market can gain market power, allowing them to block other mutually beneficial gains from trades from occurring. This can lead to inefficiency due to imperfect competition, which can take many different forms, such as monopolies,[13] monopsonies, cartels, or monopolistic competition, if the agent does not implement perfect price discrimination. In a monopoly, the market equilibrium will no longer be Pareto optimal.[13] The monopoly will use its market power to restrict output below the quantity at which the marginal social benefit is equal to the marginal social cost of the last unit produced, so as to keep prices and profits high.[13] It is then a further question about what circumstances allow a monopoly to arise. Economists say that monopolies can maintain themselves where there are "barriers to entry". [edit]Public goods Some markets can fail due to the nature of certain goods, or the nature of their exchange. For instance, goods can display the attributes of public goods[13] or common-pool resources, while markets may have significant transaction costs, agency problems, or informational asymmetry.[2][13] In general, all of these situations can produce inefficiency, and a resulting market failure. A related issue can be the inability of a seller to exclude non-buyers from using a product anyway, as in the development of inventions that may spread freely once revealed. This can cause underinvestment, such as where a researcher cannot capture enough of the benefits from success to make the research effort worthwhile.

[edit]Natural monopoly Natural monopoly, or the overlapping concepts of "practical" and "technical" monopoly, is an extreme case of failure of competition as a restraint on producers. The problem is described as one where the more of a product is made, the less the unit costs are. This means it only makes economic sense to have one producer. [edit]Externalities Main article: Externality The actions of agents can have externalities,[6][13] which are innate to the methods of production, or other conditions important to the market.[2] For example, when a firm is producing steel, it absorbs labor, capital and other inputs, it must pay for these in the appropriate markets, and these costs will be reflected in the market price for steel.[13] If the firm also pollutes the atmosphere when it makes steel, however, and if it is not forced to pay for the use of this resource, then this cost will be borne not by the firm but by society.[13] Hence, the market price for steel will fail to incorporate the full opportunity cost to society of producing.[13] In this case, the market equilibrium in the steel industry will not be optimal.[13] More steel will be produced than would occur were the firm to have to pay for all of its costs of production.[13] Consequently, the marginal social cost of the last unit produced will exceed its marginal social benefit.[13] [edit]Property right as right of control Hugh Gravelle and Ray Rees argue that more fundamentally, the underlying cause of market failure is often a problem of property rights. A market is an institution in which individuals or firms exchange not just commodities, but the rights to use them in particular ways for particular amounts of time. [...] Markets are institutions which organize the exchange of control of commodities, where the nature of the control is defined by the property rights attached to the commodities.[9] As a result, agents' control over the uses of their commodities can be imperfect, because the system of rights which defines that control is incomplete. Typically, this falls into two generalized rights excludability andtransferability. Excludability deals with the ability of agents to control who uses their commodity, and for how long and the related costs associated with doing so. Transferability reflects the right of agents to transfer the rights of use from one agent to another, for instance by selling or leasing a commodity, and the costs associated with doing so. If a given system of rights does not fully guarantee these at minimal (or no) cost, then the resulting distribution can be inefficient.[9] Considerations such as these form an important part of the work of institutional economics.[16] Nonetheless, views still differ on whether something displaying these attributes is meaningful without the information provided by the market price system.[17] [edit]Public choice Economists such as Milton Friedman from the Chicago school and others from the Public Choice school, argue that market failure does not necessarily imply that government should attempt to solve market failures, because the costs of government failure might be worse than those of the market failure it attempts to fix.