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Welfare Economics

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Welfare Economics

This topic explores the branch of economics that focuses on the optimal allocation of resources and goods and how this affects social welfare. It analyzes the total good or welfare that is achieved at a current state as well as how it is distributed. This relates to the study of income distribution and how it affects the common good. Welfare economics is a subjective study that may assign units of welfare or utility in order to create models that measure the improvements to individuals based on their personal scales.

This topic employs the perspective and techniques of microeconomics, but these can be aggregated to make macroeconomic conclusions. Because different "optimal" states may exist in an economy in terms of the allocation of resources, welfare economics seeks the state that will create the highest overall level of social welfare.

Topic Learning Outcome: Appropriately utilize and interpret results of applying the principles of welfare economics to the analysis of public policy and management problems. 

Core Concepts associated with this Topic: Economic Liberalism; Economic Model; Economics; First Theorem of Welfare Economics; Isowelfare Curve; Kaldor-Hicks Criterion; Microeconomics; Monotonic Transformation; Pareto Efficient Allocations; Pareto Improvement; Political Economy; Productivity; Rent Control; Rent-Seeking; Second Theorem of Welfare Economics; Social Welfare Function; Utility; Utility Function.

Recommended Reading

University of Toronto: PPG-1002

Varian, Hal R., and Jack Repcheck. Intermediate microeconomics: a modern approach. Vol. 6. New York, NY: WW Norton & Company, 2010. Chapter 33 (p. 632-644).

Johnson-Shoyama: JS-805

Krugman, Paul, Robin Wells, and Anthony Myatt. Microeconomics: 1st Canadian Edition. London: Worth Publishers, 2006. Chapters 18 - 20.

Weimer, David L. and Aidan R. Vining. Policy Analysis, 5th edition. London: Longman Publishers, 2011. Chapters 5 - 7.

American: PAUD-630

Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapters 4, 7, and 8.


Sample Assessment Questions:

1.) What are the first and second theorems of welfare economics?

2.) What is a utility function? How does it differ from a social welfare function?

Page updated by Sean Goertzen and Ben Eisen on 16 April 2015.


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School of Public Policy and Governance