Economics

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Welfare Economics

Welfare economics came to being as a well-defined branch of economics during the 20th century. Welfare economics is a branch of economics that employs microeconomic techniques to evaluate economic well-being, and also analyzes social welfare measured in terms of economic activities of the individuals in a society. Social welfare points to the overall welfare of society. It can also be understood as the sum total of the welfare of all the individuals in the society.

The general concept of Welfare economics studies the ways to optimally use the available resources to eliminate poverty from the society and ensuring that everyone in society has the chance to participate in the economic development of the community.

The study of Welfare economics focuses on the equitable allocation of resources as a means of achieving the highest degree of welfare for each and every individual in a society by using consumer surplus to ensure that each individual enjoys a decent standard of living similar to the standards enjoyed by the privileged in the society.

Lorenz curve is used to analyse welfare economics. The curve takes into account the percent of income owned by the poorer class of a community, in comparison to the percent of income owned by the richer classes. This simple data calculation makes it possible to determine the degree of disparity between the rich & the poor, paving the way for discussion on how to redistribute that wealth and decrease the current level of inequality. The goal of this Lorenz curve analysis is to determine Pareto efficiency within the economy.  

The general welfare can be in form of employment opportunities as well as functioning as active consumers for the goods and services produced by industries within the community. Another aspect of welfare treats equal distribution of income and goods amongst all in a community.

Some of the more classified terms in welfare economics include:

  • Externalities
  • Equity
  • Justice
  • Equality & Inequality
  • Altruism