Page 361 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory Dilfraz Singh, Lovely Professional University

Notes
Unit-24: Pigovian Welfare Economics and Externalities

CONTENTS

Objectives
Introduction

24.1 Concept of Welfare

24.2 Pigovian Welfare Conditions
24.3 Analysis of Divergence between Private and Social Costs and Returns, or of Externalities
or External Effects
24.4 Pigou’s Concept of Ideal Input

24.5 Summary
24.6 Keywords

24.7 Review Questions
24.8 Further Readings

Objectives

After studying this unit, students will be able to:
• Understand the concept of welfare.
• Know the Pigovian welfare conditions.
• Discuss the Pigou’s concept of ideal output.

• Explain the external economies of production.

Introduction

The first recognized work on the welfare economics is “The Economics of Welfare” by Professor A.C.
Pigou. Professor Pigou is considered as the father of welfare economics because Dr. Little has
indicated, welfare economics started with Professor Pigou. Prior to this, we had Joy Economics and
before that Monetary economics. Pigou’s welfare economics can be divided, for convenience, into
three parts—(1) concept of welfare; (2) welfare conditions; and (3) analysis of divergence between
private and social cost and returns. We will study these accordingly.

354 LOVELY PROFESSIONAL UNIVERSITY