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Unit-3: Economic Welfare and National Income

festival affects people’s welfare, but they are not included is the estimation of GNP became providing Notes
such a services, there is no market transaction Door knobs

Did You Know? If national income increment by exploiting of labours then it cannot be said
increment is economic welfare.

Externalities – Similarly externalities have propensity to increase or less welfare but they are not
included is GNP estimation. A externalities as a result of personal production and consumption is
cost or profit on someone, but as externalities’ cost or profit can not be measured by money but it is
not included market activities. Examples of external advantage, a man get enjoy by seeing neighbour’s
best garden. Former have the tendency of increase is welfare later is less since externalities without
any monetary, transaction, therefore they are not included is the estimation of national income.
Nature of Production - In the estimation of GNP by different goods do not reflects the capacity of
giving different satisfaction level of society. Doing equal expenditure on an atom bomb or a dam on
river, do equal inverses in national income but it give different level of satisfaction to society. A bomb
does not increase welfare whereas a dam does.
Standard of living – In the estimation of GNP does not express standard of living. If most part of
national expenditure, expend of war and capital goods less and part on consumption goods building
then it does not seem in the estimation of International income. But less in the production of consumer
goods have the nature to less people’s welfare, whereas expenditure of war’s equipment and capital
goods does not increase welfare of present.
From above related point of view, GNP can not be used as a measure of welfare. Rather than some
economists have tried to define GNP more rudely so the economic welfare can be measured proof.
Nordhaurs & Tobin in 1972 tried first towards this. They constructed measure of Economic Welfare
MEW, which Samyulson is called Net Economic Welfare New.
According to Nordhaus and Tobin, is their MEW all those consumption by which human welfare
causes, tried to measure it. For the value of estimation of MEW he deducts some items from
consumption which does not which security, regrettable necessities as a police, cleaners etc. on
government expenditure and daily by individual frame house to work place going by scooter, bus
or vehicle cost, durable machine, fridge etc. are included, and thirdly occurred expected cost form
negative externalities which are found due to urbanization, corwd and pollution.
After the deduction of all there items, Nordhaus and Tobin following three items deposit is
consumption. There are (1) Value of non- market activities, (2) estimation of Value of durable consumer
goods which consumptions actually, and (3) estimation of value of leisure.
Nordhan and Tobin gives more emphasis on evaluation of rest in estimation of MEW For this they
followed two methods: Alternate cost method and Actual value method. First method based on
this principle that when only person selects more rest then it does on the sacrifice of more income.
The meaning of one hour rest, sacrifice of one hour wages. According to their estimation, rest value
measured by alternate cost are continually increasing during several year. Because with respect to
time per hour real wages is continually increasing. Actual value method, value of given by one hour
rest measured by given actual pleasure (utility.)

Task Give your view on economic welfare.

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