Smith laid out an argument that is now familiar to all economics students. It is net national product nnp at factor cost fc it does not include taxes, depreciation and nonfactor inputs raw materials. The concept of welfare economics is used as a mode of discussing alternative government policies and as part of the discussion on alternative systems of government. Introductory econometrics, and, of course, the handbook of labor economics hle. The major problem of gnp as a measure of welfare is that it measures the commercial transactions taking place in the economy while the welfare of the individuals depends on many other nontransactional. It is a tool that helps us evaluate the desirability of market outcomes. Welfare economics deals with topics on justice, equity, freedom and other pertinent topics geared toward economic growth and progress. The fundamental theorems of welfare economics john s. Market structure part i perfect competition and monopoly 18 22. The subtopics for each lecture are related to the chapters in the textbook. The utilitarians were the first to talk of welfare in terms of the formula, the greatest happiness of the greatest number. We build entirely on models with microfoundations, i. My goal in these notes is to talk about some of these chickenandegg situations, in which. In this lecture, we shall be concerned exclusively with efficiency in distribution the rightmost box in bold frame in the chart above.
Introduction to welfare economics the literature on welfare economics has grown rapidly in recent years. Request pdf notes on welfare economics, information, and uncertainty this chapter discusses the information a government may have about consumers and vice versa. Developing countries, notwithstanding the enormous strides they have made in the last few decades, display fundamental economic inadequacies in a wide range of indicators. Chipman university of minnesota january 31, 2002 1 preliminary concepts and discussion the socalled fundamental theorems of welfare economics state that, under certain conditions, every competitive equilibrium is a pareto optimum, and conversely, every pareto optimum is a competitive. And just as its hard to find a market that really seems perfectly competitive in all respects.
The explanations of economic theories and concepts in the lecture notes are kept concise by. Hilary hoynes pgexternalities uc davis, winter 2010 9. Therefore, the social welfare gain which is the area under the msb curve is greater than the social welfare loss which is the area under the msc curve resulting in a net social welfare gain. The overall welfare loss to society from the market failure is given by the excess of msc over mpc between q and q. Jun 28, 2009 we use your linkedin profile and activity data to personalize ads and to show you more relevant ads. The lecture notes shown below are from the one of the discussion sections for the course. All these are well known labels to address one of the oldest problems in economics, namely how prices arise in the market when there are few competitors. Sep 14, 2012 welfare economics deals with topics on justice, equity, freedom and other pertinent topics geared toward economic growth and progress. The chapter also includes remarks on preferences regarding uncertainty. Weve just simply assumed there is some utility function.
Introduction to welfare economics learning objectives. This half lecture sets up the dynamic maximization problem corresponding to optimal. The market will tend towards a competitive equilibrium that is pareto optimal if there are no market failures ideal conditions. Modern economics and mathematics, individual decision making, consumer theory, production theory, choice under uncertainty, strategic behavior and markets, game theory, theory of the market, general equilibrium theory and social welfare, normative theory of equilibrium. This is adam smiths invisible hand rst welfare theorem 3761. The first fundamental theorem says that, under certain assumptions, all competitive equilibria are. Economics lecture notes, economics tuition singapore.
They have been written by the principal economics tutor, mr. Lecture notes economic growth economics mit opencourseware. Competitive exchange we know that the competitive equilibrium will occur on the contract. Lecture notes microeconomic theory and public policy. Economics cafe provides economics lecture notes which are not confined to use by students taking economics tuition at the learning centre. Pareto efficiency is one of the main concepts in welfare economics. Chapter 1 introduction industrial organization1, industrial economics, oligopoly, imperfect competi tion. We use your linkedin profile and activity data to personalize ads and to show you more relevant ads. Students can refer to economics a singapore perspective for the diagrams. Welfare analysis an extension of the supply and demand framework. When we evaluate things prudentially, we may evaluate. Measuring a nations income 31 gdp and welfare country welfare per capita income difference life expectancy cy leisure inequality usa 1.
Introduction it is reasonable to say that adam smith 1776 has played an important role in the development of welfare theory. Introduction to graduate public economics stefanie stantcheva fall 2016 1 55. To evaluate the effects of government intervention. This is an important condition in economics and it equates the relative price of two goods to the marginal rate of substitution mrs between them. Edmund quek, for everyone who can benefit from them. Walrasian equilibrium and welfare theorems in economies with production in this lecture we give the definition and an example. Economics 14 class notes spring 2005 introduction scarcity and choice. This book has been developed from lecture notes and handouts which i have used over the past several years in the course, general equilibrium and welfare.
We have only looked at partial equilibrium analysis in this course. To understand this role, let us start with the two fundamental theorems of welfare economics. Economics lecture notes chapter 7 market failure will be taught in the first, second, third and fourth weeks of term 3 in economics tuition. For instance, we may ask whether one distribution of goods amongst citizens is better or. Public finance is the positive and normative analysis of governments role in the economy. Consequently, to improve a persons welfare means to reduce welfare of someone else. This chapter discusses the information a government may have about consumers and vice versa.
We assume that people act in their own rational selfinterest. This section provides a lesson on the principles of welfare economics. The fundamental theorems of welfare in economic theory. Gdp and welfare country welfare per capita income difference life expectancy cy leisure inequality usa 1. First, a distinction is made between a efficiency in the productionof goods and services and b b efficiency in the distribution of services from producers to end users. Industrial organization matt shum hss, california institute of technologylecture 2. I competitive markets are paretoe cient i any e cient allocation can be reached by a competitive equilibrium then why gvt intervention. It follows that these units of output should be consumed.
Notes for a course in development economics debraj ray version 3. Economics lecture 3 class notes national income total value of final goods and services produced by the normal residents during. Lecture 8 welfare analysis department of economics. Biased preferences equilibrium, with asher wolisnky.
Welfare economics assumes that individuals are the best judges of their own welfare. Notes on welfare economics, information, and uncertainty. Gives the efficient and optimal allocation of goods. Stocks are equal to demand for every good, that is a rise in personal endowments is. Open a book any book on the economics of developing countries, and it will begin with the usual litany of woes. Lecture notes principles of microeconomics economics. These lecture notes were prepared by xingze wang, yinghsuan lin, and frederick jao specifically for mit opencourseware. Welfare economics w000031 in 1776, the same year as the american declaration of independence, adam smith published the wealth of nations. Read the recitation notes, which cover new content that adds to and supplements the material covered in lecture. Makes use of the optimization analysis we have been doing. Economics lecture 3 class notes national income total value of final goods and services produced by the normal residents during an accounting year, after adjusting depreciation. The concept of efficiency as used in economics is multifaceted, as is shown in the chart below. This section provides lecture notes from the course.
Political economy lecture notes pdf 569p download book. Stocks are equal to demand for every good, that is a rise in personal endowments is possible only due to reallocation of resources. Gross domestic product measuring a nations income 0 august 28, 2014 prof. Public finance analyzes the role of government in the economy. Lecture materials in public sector economics the economics. Axioms of consumer preference and the theory of choice. As well see later on, the ethical theory of welfare economics will fit into this schema, with preferentism exchanged for hedonism. Bozio 8 preferences aggregation and intertemporal justice t. Pdf lecture notes on natural resource and environmental. The mrs measures the amount of good j that the consumer must be given to compensate the utility loss from a oneunit marginal reduction in her consumption of good i.
The emphasis is on theory, although data guides the theoretical explorations. Welfare economics 1 welfare economics the branch of economics dealing with normative issues. Economics is the study of the allocation of scarce resources among competing and insatiable needs so as to maximize welfare. Its purpose is not to describe how the economy works but to assess how well it works. Lecture 1 welfare economics and the environment uio. However, your moral evaluations of states of affairs and actions neednt come apart in these ways. This definition is abstract, just as the definition of perfect competition is abstract.
The overriding goal of the course is to begin provide methodological tools for advanced research in macroeconomics. January 2018 1this lecture notes are for the purpose of my teaching and convenience of my students in class. To answer this question, we need some benchmark measure against which we can compare the outcome with and without government interference. Pdf on jan 4, 2020, gourav kumar vani and others published lecture notes on natural resource and environmental economics find. From the basic theorems of welfare economics, if this economy is perfectly competitive and there is a full set of markets conditions discussed in greater detail in lecture 11, then, assuming that an equilibrium exists. Hilary hoynes pgexternalities uc davis, winter 2010 9 77. Walrasian equilibrium and welfare theorems in economies with production in this lecture we. People make the choices they believe leave them best off. Social spending includes welfare, unemployment, pensions, health and housing subsidies. Condorcet voting paradox served as an origin to social choice theory.
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