Question

Here’s how economists think about “consumer welfare,” or what makes an individual better or worse off.    Suppose A and B are two markets baskets.  Then if  --35-- , we would say that the individual is better off with A.  This approach to defining welfare is referred to as  --36--

The way in which economists think about welfare makes it impossible to figure out whether or not a change in consumption increases (or decreases) a person’s welfare.  True or false. --37-- .

Why is that?  --38--

A person’s willingness to substitute is determined by her preferences.  In fact, when we talk about willingness to substitute we’re talking about the same thing as preferences.  

Say we give households "food stamps," a debit card which allows it to buy $100 worth of food each week.  Could this increase the households welfare more than giving it $100 cash?

An economist would say food stamps, Medicaid, and rent vouchers are ---41---

Everybody has the same preferences.   Is that right?    

Answer 1

Here’s how economists think about “consumer welfare,” or what makes an individual better or worse off.    Suppose A and B are two markets baskets.  Then if Basket A provides more benefits and greater satisfaction(or is less expensive), we would say that the individual is better off with A.  This approach to defining welfare is referred to as Pareto efficiency.

The way in which economists think about welfare makes it impossible to figure out whether or not a change in consumption increases (or decreases) a person’s welfare.  True or false. True

Why is that? This is because the individual has to give off something to get something else. They derive satisfaction from one basket A (welfare) at the expense of another basket of satisfaction(B). Consumption of one basket of products is done by foregoing another basket of goods. Thus, it is difficult to understand whether the consumption of one basket increases welfare or non consumption of another basket decreases welfare.

A person’s willingness to substitute is determined by her preferences.  In fact, when we talk about willingness to substitute we’re talking about the same thing as preferences.  

Say we give households "food stamps," a debit card which allows it to buy $100 worth of food each week.  Could this increase the households welfare more than giving it $100 cash? Yes it would increase the welfare of low income group as food stamps could be used specifically for food products making food accessible to them(suffering from hunger) for their survival and growth. If $100 cash is given, it could be used for any purpose and the poor could use it for something else rather than food or compromise on his food. Again that depends on the welfare needs and preferences. It might be such that a family is having sufficient food provision but not having enough money for healthcare. In that case he can use $100 for his medicines and health checkup. Here food stamp would not increase his welfare but $100 would.

An economist would say food stamps, Medicaid, and rent vouchers are instruments of welfare programs.

Everybody has the same preferences.   Is that right? - No, everybody does not have the same preferences. People have different preferences depending on their choices, needs , wants, situations, time, status and their level satisfaction from different products. A high income individual would prefer to travel by air than train for his convenience, luxury, satisfaction and status-quo. On the other hand a lower class might have to choose between a train or bus so his preference would be different. His preference would be to travel economically.