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    Asawari Savarikar
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    This document discusses concepts in welfare economics. It defines positive economics as describing economic phenomena based on objective data, while normative economics focuses on what the economy should be and is based on value judgments. Welfare economics concerns improving social welfare by making at least one person better off without harming others, as well as analyzing resource allocation and distribution among goods and consumers. It provides an Edgeworth box diagram as an example of determining efficient allocation of goods between two people.

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    This document discusses concepts in welfare economics. It defines positive economics as describing economic phenomena based on objective data, while normative economics focuses on what the economy should be and is based on value judgments. Welfare economics concerns improving social welfare by making at least one person better off without harming others, as well as analyzing resource allocation and distribution among goods and consumers. It provides an Edgeworth box diagram as an example of determining efficient allocation of goods between two people.

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    39 views6 pages

    Welfare Economics

    Uploaded by

    Asawari Savarikar
    This document discusses concepts in welfare economics. It defines positive economics as describing economic phenomena based on objective data, while normative economics focuses on what the economy should be and is based on value judgments. Welfare economics concerns improving social welfare by making at least one person better off without harming others, as well as analyzing resource allocation and distribution among goods and consumers. It provides an Edgeworth box diagram as an example of determining efficient allocation of goods between two people.

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    © All Rights Reserved
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    WELFARE ECONOMICS

    CONCEPTS
    Introduction
    • We have been concerned about “what is” economics from the
    very beginning of Microeconomics which is also known as
    Positive economics.
    • Positive economics is concerned with the description,
    quantification, and explanation of economic developments,
    expectations, and associated phenomena. It relies on objective
    data analysis, relevant facts, and associated figures. It attempts
    to establish any cause-and-effect relationships or behavioral
    associations which can help ascertain and test the development
    of economics theories.
    • Positive economics describes and explains various economic
    phenomena or the "what is" scenario.
    • Normative economics focuses on the value of economic
    fairness, or what the economy "should be" or "ought to be."
    • While positive economics is based on fact and cannot be
    approved or disapproved, normative economics is based on
    value judgments.
    • Most public policy is based on a combination of both positive
    and normative economics.
    • Normative economics focuses on the ideological, opinion-oriented, prescriptive,
    value judgments, and "what should be" statements aimed toward economic
    development, investment projects, and scenarios. Its goal is to summarize
    people's desirability (or the lack thereof) to various economic developments,
    situations, and programs by asking or quoting what should happen or
    what ought to be.

    • Normative economics is subjective and value-based, originating from personal


    perspectives, feelings, or opinions involved in the decision-making process.
    Normative economics statements are rigid and prescriptive in nature. They often
    sound political or authoritarian, which is why this economic branch is also called
    "what should be" or "what ought to be" economics.

    • An example of a normative economic statement is: "The government should


    provide basic healthcare to all citizens." As you can deduce from this statement,
    it is value-based, rooted in personal perspective, and satisfies the requirement
    of what "should" be.
    • Both positive and normative economic statements are required in order to
    create the policies of a country, region, industrial sector, institution, or business.
    WHAT IS WELFARE ECONOMICS?
    • “Any change that makes at least one person better off
    without making any other worse off is an improvement in
    social welfare.”- Vilfredo Pareto
    • “Welfare economics has concerned itself mostly with policy
    issues which arise out of the allocation of resources, with
    distribution of inputs among the various commodities and
    their distribution among various consumers.” Baumol
    Edgeworth box diagram
    • 2 people
    • 2 goods
    • Determination of efficient good allocation

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