Importance of welfare economics-
Welfare economics is that branch of the economics which studies the judgment of the market makers and market in allocating the resources. Welfare economics is important to be studies because it uses utility possibility frontier as a conceptual tool in deciding the bundle of goods which have a minimum utility condition and are socially desirable. The fundamental theorem of welfare economics for the analysis of the competitive market puts a restrictive condition that resource allocated by market would achieve Pareto efficiency. Pareto efficiency means that there is no other condition available in the market where one individual can be better off without decreasing the utility of another person.
The importance of welfare economics can be better understood through this example- suppose that government should intervene to fix a market failure, say by introducing Pigouvian tax, then the welfare economist would decide the tax rate and other policy instruments to maximize the social welfare objective. Therefore, for the government policies to be successful the role of welfare economics is important. Welfare economics helps in comparing the outcome from a given market with intervention of the government policies and with no intervention from the government, the objective of welfare economics is to achieve social optima either from the government intervention or from the free play of market forces. Therefore it's important for the students to have a good knowledge of the welfare economics to judge the decisions made by the government.
Difficulties faced by a student while solving welfare economics problem-
The most common problem faced by students in welfare economics is the situation when policies fail to be efficient using second best efficiency as a benchmark; it is also known as political failure. This happens when politicians extract resources for themselves at the expense of the voters, there are many economists who take social surplus as the benchmark to judge the political outcomes but it is conceptually problematic for students because the notion of surplus is defined under restrictive assumptions about preferences.
1. There are lump sum transfers,
2. Social preference weights a dollar in every citizen's hand equally.
Therefore even if the political process and the planner were able to make the lump sum transfer of the surplus but the (2) will have to hold to justify the intervention. Therefore political failure can be defined as the point where the government unable to hold a Pareto efficient point. Political failure can also occur when there is a coordination difficulty among voters for example- suppose there are both incompetent and competent candidates in an election (competent candidate mean the individual who can generate Pareto efficient output) and the voters fail to elect the competent candidate because of the different ideologies which lead to political failure.
Few important tips to solve problems of welfare economics -
The problems of welfare economics are related to the Pareto efficient output, which is the best available outcome for the society where no individual can be better off without decreasing the utility of another individual. The most efficient way of dealing with the problems of welfare economics is to use edge worth box which is invented by Francis Edgeworth; the box depicts an economy where two isolated individuals freely trade to private goods. It is a market pricing process where the prices leads individuals to Pareto optimum, the prices convey correct information about the market and the consumer decides the objective possibilities or the best bundles of good which will provide him the highest utility. The necessary condition to achieve Pareto optimum output in a competitive economy is-
- Consumption- the marginal rate of substitution (MRS) is same for the two individuals trading output so that there indifference curves can be tangent to each other,
- Production- the marginal rate of technical substitution (MRTS) should be equal between the producers producing the given output.
- Consumption-production - the most important point for Pareto optimum point is that the MRS is equal to the MRTS.
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Welfare economics is that branch of the economic theory which deals with the social desirability with different economic states; it helps in achieving a social optimum output which is beneficial for the economy as whole. All the assignments will be delivered in time which is expected from an expert and any problem of student can be sent at any point of time and it will be dealt with utmost priority. As seen in economics time is a constraint but while solving a problem time will never be seen as constraint by the students. Expertsminds offers Welfare economics solutions, Assignment Help, Welfare economics Assignment Writing Help, Welfare economics Assignment Tutors, Welfare economics Solutions, Welfare economics Answers, Economics Assignment help and experts support.
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