Welfare economics

1. WELFARE
ECONOMICS
(GROWTH AND DEVELOPMENT)

2. Welfare Economics
•deals with topics on justice, equity,
freedom and other pertinent topics
geared toward economic growth and
progress.
•It is concerned with the welfare of
individuals. The individuals are us, the
consumers. Welfare Economics assumes
that individuals are the best judges of
their own welfare.

3. Social Goals and Social Choice
•Various societies have different
goals, but members of these
societies seem to concur to the
same objectives of justice, equity,
freedom and growth and progress
in the economy.

4. •Justice, In Economics pertain to
equitable distribution or
specifically, equity in terms of the
distribution of wealth and
income.
•Freedom, In Economics, pertains
to the choice of consumption,
occupation and employment.

5. ECONOMIC GROWTH
VIS-A-VIS ECONOMIC
DEVELOPMENT

6. The term “progress ”implies a movement for the
better…..
 Pareto Optimality or Parentian Optimum
- it declares that a change w/c makes
somebody richer but nobody poorer is
desirable.
 Economic Growth
- shows an increase in per capital
income.

7. Economic Development
- a process whereby the real per
capital income of a country increases
over a period of time.
Balanced Growth Thesis
- Underdevelopment must be
overcome through simultaneous
investment in diff. fields.

8. Unbalanced Growth Thesis
- some sector in the economy
lead in initiating Economic Growth.

9. Two major strands to the study of
Development
Stages of Economic Growth
- development is seen as a series of
successive stages through w/c all countries
must pass.
Structural-Internalist Theories
 (a)Neo-Colonical (or Neo-Marxist)/
Dependence Model
 (b)False Paradigm Model

10. Modernization school
Walt Whitman Rostow, American
Economist Historian.. – proponent
Key characteristics:
•It is evolutionist
•It is unilinear
•It is internalist
•It is recapitulationist

11. Dependency school
Andre Gunder Frank,American Economist..
-proponent
Key Characteristics:
 It is externalist
 It is bilinear
 It is stagnationist
 It is discontinuist

12. Perspective of development
Psychological – speeds up or
delays behaviors, attitudes and
values; its basis is the human
person which in fact is the root in
which human society thrives.
Behavioral – requires the analysis
of its determinants or that which
affect responses.

13. Kelburn Workshop
•Literacy, education, and skills
•Health
•Income and economic welfare
•Choice, democracy and participation
•Technology

14. Economic Development Theories
The three building blocks of most
Growth Models are:
The production function
The saving function; and
The labor supply function

15. Harrod-Domar Model
ag = _s_
k
 by Sir Roy Harrod of Britain and E.V
Domar of USA.
 commonly used during the early
postwar times by developing countries
in economic planning.

16. Exogenous Growth Model
( Neoclassical Growth Model)
 An economic theory that outlines
how a steady economic growth
rate will be accomplished with the
proper amounts of the three
driving forces: labor, capital and
technology.

17. Surplus Labor Model
- is an economic development model and
not an economic growth model.
- the development process is triggered by
the transfer of surplus labor in the
traditional sector to the modern sector
in which some significant economic
activities have already begun.

18. The Stages of Economic Growth
The theory is intended as a direct counter to
the Marxist Stage Theory of Capitalist
Development. The basic proposition is that all
countries are located in one of a hierarchy of
developmental stages:
•Traditional Society
•Transitional Stage: Preconditions for Take-Off
•Take-Off
•Drive to maturity
•High Mass Consumption

19. The Big Push/Balanced Growth
- the "big push" was to develop
industry and not agriculture,
although agriculture could not be
ignored. This was the way to break
the vicious circle of poverty. The
vicious circle of poverty is
perpetuated by the lack of capital.

20. Unbalanced Growth
- Unbalanced Growth recognized both
backward (inputs create demand for other
products) and forward (Inputs to other
industries) linkages.

21. SUSTAINABLE DEVELOPMENT
- Human Welfare is the essence of
development. Human development.
Human development is the process of
enlarging people’s choice. There are
three(3) essential areas of opportunity:
• to lead a long and healthy life.
• to acquire knowledge
•to have access to resources needed for a
decent standard of living.

22. Human Development
•"Sustainable development is
development that meets the needs
of the present without
compromising the ability of future
generations to meet their own
needs. It contains within it two key
concepts:

23. •the concept of needs, in particular the
essential needs of the world's poor, to
which overriding priority should be
given; and
•the idea of limitations imposed by the
state of technology and social
organization on the environment's
ability to meet present and future
needs."

24. National Income
Accounts and
Related Issues

25. •Gross National Product (GNP)
is the market value of final goods and
services produced in a year by domestically
owned factors of production.
•Final Goods
are goods that are ultimately consumed
rather than used in the production of another
good.

26. •National Income
is the flow of income and expenditure
measures of the country.
•Nominal GNP
is the market value of a nation's
aggregate production of final output based on
current prices for the goods and services
produced during the year.

27. •Real GNP
is the measure of the value of a nation's
aggregate output of final products obtained
by using market prices prevailing for
products during a certain base or reference
year.
•Aggregate Real Income
is the nominal (money) income of a
nation, adjusted for inflation, expectations of
equivalent to real GNP.

28. •Net Export
is any excess of expenditures
on export over imports.

29. Aggregate Expenditures
the nominal income of a nation, adjust for inflation.
The four (4) categories are:
•Personal Consumption Expenditures
•Gross Private Investment
•Government Purchases of goods and services
•Net Exports

30. Components of the aggregate incomes of
individuals & corporations
•Compensation of Employees
• Proprietor’s Income
•Corporate Profits
•Net Interest
•Rental Income
•Other income components of GN

31. GNP per person is often used as a
measure of people’s welfare.
Limitations to the usefulness of GNP as a
measure of welfare:
•Measure of GNP typically exclude
unpaid economic activity.
•GNP takes no account of the inputs used
to produce the output.

32. •Comparison of GNP from one country to
another may be distorted by
movements in exchange rates.
•GNP does not take into account many
factors that maybe important to quality
of life.

33. GNP adjustment for price changes
•GNP is precise if prices and the value of
the peso remain constant.
•Inflation
-increase in the price level
•Deflation
-decrease in the price level

34. Aggregate demand components
•Aggregate Demand
- demand for the total output of the
economy.
Formula to get the total demand for output:
AD=C+I+G+(X-M)
GNP=C+I+G+(X-M)

35. AD= aggregate demand X= exports
C= consumption expenditures M= imports
I= investment expenditures
G= government expenditures

36. Consumption
•Represents the household
expenditure in the country for
goods and services.
•Consumption is the value of goods
and services bought by people.
Individual buying acts as
aggregated over time and space.

37. Composition According to
Durability:
•Durable (goods)
- Cars and Television Set
•Non-Durable (goods & services)
- foods and restaurant expenditure.

38. According to the Need it Satisfy
•Food
•Clothing and Shelter
•Health
•Education
•Transport

39. The Methods of Computing/Measuring
National Income
•The product method
•The expenditure method
•The income method

40. The Product Method or Value
Added Method
•measures GDP as the difference
between value of output less the
value of goods and services used in
producing these outputs during an
accounting period.

41. Precautions for Product
Method
•Double Counting
•Value Addition in Particular Year
•Stock Appreciation
•Production for Self Consumption

42. Expenditure Method
The Expenditure Approach
measures National Income as total
spending on final goods and services
produced within nation during a year.

43. Consumption Expenditure (C)
- expenditure on all goods and services
produced and sold to the final consumer
during the year.
Investment Expenditure (I)
- expenditure incurred on by business
firms on (a) new plants, (b) adding to the
stock of inventions and (c) on newly
constructed houses.

44. Government Expenditure (G)
- all government expenditure on
currently produced goods and services but
excludes transfer payments while computing
national income.

45. Net Export Expenditure (X - M)
- National Income calculated from the
expenditure side is the sum of final
consumption expenditure, expenditure by
business on plants, government spending,
and net exports.
NI = C + I + G + (X - M)

46. Income Approach
- is another alternative way of
computing National Income. This
method seeks to measure National
Income at the phase of distribution.

47. 4 categories of payments are briefly
described below.
•Wages
•Rents
•Interests
•Profits

48. Burgonio, Rhose – Ann
Gamba, Jinkie
Madronio, Ramon Noriel M.
Hernandez, Jobeth
Orane, Nerlyn