Question

Write in brief about the Theory of Economic Welfare.

Answer 1

Microeconomics encompasses the notion of Economic Welfare. The efficiency of resource allocation is the main focus of the welfare theory. Efficiency in the allocation of resources is attained when it results in the maximum satisfaction of people in an economy. Therefore, microeconomics studies the following three efficiencies:

1. Efficiency in production: Efficiency in production means producing the maximum possible amount of goods from the given amount of resources. Microeconomics analyses how efficiency in production can be obtained.
2. Efficiency in consumption: Efficiency in consumption means the distribution of produced goods and services among the people for consumption in such a way as to maximise the total satisfaction of society. Microeconomics analyses how efficiency in consumption can be obtained.
3. Overall economic efficiency: Overall economic efficiency means producing those goods which are most desired by people in society. Microeconomics analyses how overall economic efficiency can be obtained.