Welfare Economics

AAA

DEFINITION of 'Welfare Economics'

A branch of economics that focuses on the optimal allocation of resources and goods and how this affects social welfare. Welfare economics analyzes the total good or welfare that is achieve 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.

INVESTOPEDIA EXPLAINS 'Welfare Economics'

Welfare economics uses the perspective and techniques of microeconomics, but they 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.

Some people object to the idea of wealth redistribution because it flies in the face of pure capitalist ideals, but economists suggest that greater states of overall social good might be achieved by redistributing incomes in the economy.

RELATED TERMS
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited ...
  2. Paul Samuelson

    The first American to win the Nobel Memorial Prize in Economics, ...
  3. True Cost Economics

    An economic model that seeks to include the cost of negative ...
  4. Welfare

    A government program which provides financial aid to individuals ...
  5. Marginal Social Cost - MSC

    The total cost to society as a whole for producing one further ...
  6. Allocational Efficiency

    A characteristic of an efficient market in which capital is allocated ...
RELATED FAQS
  1. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents ... Read Full Answer >>
  2. What is the Keynesian multiplier?

    The Keynesian multiplier was introduced by Richard Kahn in the 1930s. It showed that any government spending brought about ... Read Full Answer >>
  3. What is socially responsible investing?

    In the financial world, where profit and return are often the priorities of the average investor, the vehicles we use to ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  2. Personal Finance

    Go Green With Socially Responsible Investing

    Find out how morals and ethics can bring you a surprising return.
  3. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  4. Entrepreneurship

    Can Business Evolve In A Green World?

    Learn how global warming is starting to heat up America's corporate climate.
  5. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  6. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  7. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  8. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  9. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  10. Personal Finance

    Why Are Tesla Cars So Expensive?

    What makes Tesla cars so expensive? Short supply and pricey parts is a good place to start.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center