Welfare economics

   The objective of welfare economics is the evaluation of the social desirability of alternative economic state. An economic state is a particular arrangement of economic activities and of the resources of the economy. Each state is characterized by a different allocation of resources and a different distribution of the rewards for economic activity. Although the economist many not always be able to prescribe a method by which one state of the economy can be transformed into another, policy measures frequently will be available for changing an existing situation. It is important to know in such cases whether the contemplated change is desirable. Imagine, for example, that the economy can attain multimarket equilibrium at two different sets of commodity and factor prices. Since the desires of consumers and entrepreneurs are consistent at both equilibria, society can choose between them, if at all, only on welfare grounds. The principles by which such problems might be solved fall within the domain of welfare economics.

     The welfare of a society depends, in the broadest sense, upon the satisfaction levels of all its consumers. But almost every alternative to be judged by welfare economists will have favorable effects on some people and unfavorable effects on others. In light of this, the economist has many choices. She may decline to deal with cases in which a proposed social change improves the lot of some and deteriorates the lot of others and content herself with analyzing situations in which unambiguous welfare improvements are possible. Alternatively, she may decide to make interpersonal comparison of utility and analysis a broader class of situation. In the former case she is primarily concerned with efficient allocation of resources. In the latter, she must make explicit value judgments. In principle one would hope that these will rest on a social consensus, since the economist has no more competence that anyone else to say that a particular move is desirable if it has unfavorable effect upon some members of society.

     Glossary

Word	Meaning
Arrangement	Something that has to be done so that something else can happen in the future or the making of such preparations.
Attain	Get, obtain something especially by making an effort.
Consensus	General or widespread agreement among all the members of a group.
Desirability	Convenience or advisability.
Unambiguous	Completely clear in meaning or intention and unable to be misunderstood.
Welfare	Efforts especially on the part of government and institutions, to ensure that the physical, social, and financial conditions under which the people live are satisfactory.

Source: Author: James M. Henderson and Richard E. Quandt. Microeconomic theory a mathematical approac, Chapter 1, "The role of mathematics". (3rd edition 1980, McGraw Hill Book Company ). New York