Welfare Economics

Welfare economics is a branch of economics that examines how resource allocation and economic policies impact the well-being of individuals and society. It focuses on evaluating economic efficiency, equity, and social welfare rather than just production or profit. Key Features Focus on Social Welfare Measures how economic activities affect overall happiness, utility, or quality of life. Seeks policies that maximize societal well-being. Assessment of Resource Allocation Analyzes whether resources are distributed efficiently and equitably. Considers the trade-off between efficiency (Pareto optimality) and fairness. Policy Evaluation Evaluates the impact of taxation, subsidies, public goods provision, and regulations on social welfare. Helps identify market failures and areas for government intervention. Historical Significance Gained prominence in the 20th century as a formal area of economic study. Arthur Cecil Pigou, an English economist, is considered a pioneer in welfare economics, particularly for his work on externalities and social welfare. Applications Designing tax policies that reduce inequality Determining subsidies or public goods provision Assessing the costs and benefits of government projects Evaluating market efficiency and identifying externalities