micro economics 2.1

MICRO ECONOMICS SEMINAR

SHANSON 15 –PEC -25WELCOME TO ALL

THE CLASSICAL AND MARSHALLIAN WELFARE ECONOMICS

THE CLASSICAL WELFARE ECONOMICS

Classical theory do not develop an specific theory of economic welfare . The classical economics relates to the idea of . Smith . Ricardo . J. S .Mill

Smith explain real national income of a nation in terms of its physical

volume of output which is an index of its economic welfare . The

real value of a commodity is its labour price being risk some and disagreeable it is the division of labour which motivates labour to produce more smith associates

increase in welfare with a reduction in the sacrifices required

to produce more commodity

According to Ricardo…..A reduction in human effort per unit of output constitutes an improvement in welfare . Man – hours per unit of output are regarded as the measure of the net national income . His idea about riches , more the real income on the other hand values varies inversely with the labour time required per unit of output . It is there fore an inverse index of the average productivity of labour and economic welfare . Thus , for Ricardo , welfare is a matter of minimising human effort per unit of output.

According to J . S . Mill…..Do not specify about economic welfare . A reduction in working hours , keeping wages constant , would inevitable reduce output per man and lead to unemployment .

MARSHALLIAN WELFARE ECONOMICS

Alfred Marshall (1842-1924)

British economist

According to Alfred marshall Economics is the study of man in the ordinary business of his life”;It examines that part of individual and social action which is most closely connected with the attainment of and with the use of the material which will be useful for the wellbeing

Thus it is on the one side ; The study of wealth and on the other side you are more important and a part of the study of man.

CHARACTRSTICS

1. A study of material requirements of well being.2. It concentrated on the ordinary business life.3. it stress the importance of man.

MARSHALLIAN WELFARE ECONOMICS The marshallian theory of economic welfare is based on his tool of consumer’s surplus . Marshall begins with the individual consumer’s surplus or welfare and then makes the transition to the aggregate consumer’s surplus .

MARSHALL’s INDIVIDUAL CONSUMER’S WELFAREMarshall explains the individual consumer’s welfare with his tool of consumer’s surplus . Marshall defines : consumer surplus as “The excess of the price which he would be willing to pay rather than go without the thing , over that which actually does pay , is the economic measure of this surplus satisfaction”.

The price which a consumer pays for a commodity like salt , match box , postcard etc.. Is always less than what he is willing to pay for it so that the satisfaction which he gets from its purchase is more than the price paid for it and thus he derives a surplus satisfaction which increases his welfare . He explains the consumer’s surplus from a given change in the price as the area between the demand curve and the price axis within a range of the price variation .

Prof . hicks

“Marshall’s measure” of the consumer’s surplus involves nothing more than introspective or subjective than the demand curve itself.The area under demand curve after deducing consumer’s expenditure on the coomodity represents consumers surplus.

.This is based on assumption that of constant marginal utility of money for the consumers..It is free from interpersonal comparison of utility.

consumer surplus which is the sum total of the surplus from a number of commodities he buys , with a given money income . By adding up consumer’s surplus for that commodity can be known . The demand schedule so formed will be the market demand curve . But it presupposes the non existence of interpersonal difference in customs ,habits, and income of the consumers

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