Page 37 - DECO402_Macro Economics

Macroeconomic Theory

Notes But Pigou's this thought that such effects calculation is not possible. Since non- economic welfare’s can
not be measured by money, have economists should fallow this assumption that effects of economic
factors that effects on economic welfare that will be applied to total welfare also. Therefore Pigou
concluded that increasing of economic welfare increases total welfare also and vice- versa.
But it is not possible always, be comes that factor which increases economic welfare they are less than
non-economic welfare. So increase in total welfare can be less than guess. As a increment in income
both increases economic welfare as well as total welfare and vice- versa. But lives is slam areas and
suffocated environment then his economic welfare may increase but can not be considered to increase
in total welfare, if they expense on drinking, cigarette etc harmful things of their increased income.
Therefore economic welfare can not be indicator of total welfare.

Self Assessment

Fill is the blanks :
1. ‘Welfare’ is mental state that is indicator of human happiness and ........
2. Welfare is a .......... state of human mental state.
3. Pigou assumes individual welfare experience by all satisfactions ........

3.2 Relation between Economic Welfare and National Income

Economic welfare and national income both due to measures in money, Pigou establishes close
connection between there. When national income increases then economic welfare increases and
decreasing in national income decrease is economic welfare also. National income effects on economic
welfare can be studied by two types: firstly changing the size of national income; secondly, changing
in distribution of national income.
1. Changing is size of national income can be positive or negative. Positive changing in national
income increases in size so that people consumption more goods and services. Negative
changing in national income its sizes decreases then people gets less goods and services for
consumptions so that economic welfare becomes less. But this relationship depends upon a
number of matters.
Is changing is national income real or monetary? If changing in national income due to changing
prices then real changing in economic welfare tough to measure. For example price rising
comes increases national income then increases is economic welfare is not possible, because it
is possible that there is no increment in production of goods and services. The possibility of less
economic welfare less due to price rises. In national income real increase only then economic
welfare increases.
Secondly, how has been increased is national income. If increase is national income doing
exploitation of laborers then it can not said increases is economic welfare. As a laborer to
increase production by doing excess hour, paid them less salary then minimum wages, so that
they have to subject their children and wives to do work, they do not provide convenience for
coming going to factory and lodging and residing is slum areas. If such a conditions national
income increases then there will be no increases is economic welfare.
Thirdly, If percapita income was not considered then national income is not a reliable index
of economic welfare. It may be possible with increment of national income population rate
increas also and percapita income has not increases. In situation increament in national income
no increase in economic welfare. But from this it should not be concluded that welfare and less
of per capita income comes less economic welfare.

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