Welfare economics analyzes optimal resource allocation and how it affects social welfare. There are two fundamental theorems: competitive markets tend toward efficient allocation, and any Pareto efficient allocation can be achieved through lump-sum redistribution. This is illustrated using an Edgeworth box model with Raj and Priya exchanging two goods. The contract curve shows all Pareto efficient points. The Millennium Development Goals aimed to eradicate poverty, achieve education and gender equality, reduce child mortality, improve health, and ensure environmental sustainability by 2015. Progress was measured using indicators like poverty rates, education enrollment, maternal mortality, disease prevalence and treatment rates.

1. Welfare Economics and
Millennium Development
Goals

2. Welfare economics
A branch of economics that focuses on the
optimal allocation of resources and goods and
how this affects social welfare.
It analyzes the total good or welfare that is
achieved at a current state as well as how it is
distributed.

3. Fundamental theorems
There are two fundamental theorems of welfare
economics.
The first theorem is taken to the analytical
confirmation of Adam smith’s “invisible hand ”
hypothesis , namely competitive markets tend
towards an efficient allocation of resources.

4. This theorem relies only on three
assumptions
1.Complete markets
2.Price-taking behavior
3.Weak assumption of local non
satiation of preferences.

5. Cont…
The second theorem states that out of all
possible Pareto-efficient outcomes, one
can achieve any particular one by
enacting a lump-sum wealth
redistribution and then letting the
market take over.

6. Pure – Exchange Economy
We start with a simple model:
2 people
2 goods, each of fixed quantity
Determine good allocation

7. Two people: Raj and Priya
Two goods: Food (f) & Video Games (V)
We put Raj on the origin, with the y-axis
representing food and the x axis
representing video games.

8. Raj food’s graph
Video Games
Food
u
O x
Raj
Ou is Raj’s food, and Ox
is Raj’s Video Games

9.  If we connect a “flipped” graph of
Priya’s goods, we get an EDGEWORTH
BOX, where y is all the food available
and x is all the video games .

10. Edge worth box
r y o’ ’
Video Games
Food
u
O x
Raj
O’w is Priya’s
food, and O’y
is Priya’s
Video Games
w
s
Total food in the
market is Or(=O’s) and
total Video Games is
Os (=O’r)
Each point in the
Edgeworth Box
represents one
possible good
allocation

11. Edge worth and Utility
 We can then add INDIFFERENCE curves to Raj’s
graph (each curve indicating all combinations of
goods with the same utility).
Curves farther from O have a greater utility
 We can then superimpose Priya’s utility curves.
Curves farther from O’ have greater utility

12. Raj Utility Curves
Video Games
Food
O
Raj
Raj utility is greatest at M3
M1
M2
M3

13.  When an allocation is NOT Pareto- efficient, it is
wasteful (at least one person could be made better
off)
 Pareto efficiency evaluates the
desirability of an allocation
 A PARETO IMPROVEMENT makes one person better
off without making anyone else worth off (like the
move from A to C)

14. Edgeworth Box and Utility
Video Games
Food
O
Raj
Priya has the highest
utility at S3
r O’
Priya
s
At point A, Raj has
utility of M3 and
Priya has Utility of
S2
M1
M2
M3
S1
S2
S3
A

15. Edgeworth Box and Utility
Video Games
Food
O
Raj
If consumption is at
A, Raj has utility
M1 while Priya has
utility S3
r O’
Priya
s
By moving to point
B and then point C,
Raj utility increases
while Priya remains
constant
M1
M2
M3
S3
A
B
C

16. Pareto Efficiency
Video Games
Food
O
Raj
Point C, where
the indifference
curves barely
touch is called
PARETO
EFFICIENT, as
one person can’t
be made better
off without
harming the
other.
r O’
Priya
s
M1
M2
M3
S3
C

17. Pareto Efficiency
Video Games
Food
O
Raj
If we start at point A:
-C is a pareto
improvement that
makes Raj better off
-D is a pareto
improvement that
makes Raj better off
-E is a pareto
improvement that
makes both better off
r O’
Priya
s
M1
M2
M3
S3
C
S5
S4
A
D
E

18. The Contract Curve
 Assuming all possible starting points, we can find all possible
Pareto-efficient points and join them to create a CONTRACT CURVE
 All along the contract curve, opposing indifferent curves are
TANGENT to each other
 Since the slope of the indifference curve is the willingness to trade,
or MARGINAL RATE OF SUBSTITUTION (x for y) (MRSxy), along this
contract curve:
 MRS of Raj=MRS of Priya
Pareto Efficiency Condition

19. The Contract Curve
Video Games
Food
O
Raj
r O’
Priya
s

20. Typical Social Indifference Curves
Priya’s Utility
Raj’sUtility
O
Raj
An indifference curve
farther from the origin
represents a higher level of
social welfare.

21.  If we superimpose social indifference curves on top of
the utilities possibilities curve, we can find the Pareto
efficient point that maximizes social welfare.
This leads us to the SECOND FUNDAMENTAL THEOREM
OF WELFARE ECONOMICS.
 -Welfare Economics is concerned with RESULTS,
not PROCESS.

22. Millennium Development Goals
 The Millennium Development Goals (MDGs) have
helped in bringing out a much needed focus and
pressure on basic development issues, which in turn
led the governments at national and sub national
levels to do better planning and implement more
intensive policies and programmes.

23. Eight MDG
 Goal 1: Eradicate Extreme Poverty and Hunger
 Goal 2: Achieve Universal Primary Education
 Goal 3: Promote Gender Equality and Empower Women
 Goal 4: Reduce Child Mortality
 Goal 5: Improve Maternal Health
 Goal 6: Combat HIV/AIDS, Malaria and TB
 Goal 7: Ensure Environmental Sustainability
 Goal 8: Develop Global Partnership for Development

24. ERADICATE EXTREME POVERTY AND HUNGER
 1. Poverty Head Count Ratio (percentage of
population below the national poverty line)
 2. Poverty Gap Ratio
 3. Share of poorest quintile in national consumption

25. ACHIEVE UNIVERSAL PRIMARY
EDUCATION
 Ensure that by 2015, children everywhere, boys and
girls alike, will be able to complete a full course of
primary education.
 An all-round development of our citizens can be
achieved by building strong foundations in
education. Education is a unique investment in the
present, bearing invaluable benefits in the future.

26.  The overall increase in enrolment in primary education during
the period 2000-01 to 2013-14 was 18.6 million while the
overall increase in enrolment of boys and girls respectively was
4.6 million and 14.0 million during this period.
 The enrolment in primary education reached the highest level
in 2011-12 (137.1 million) and then declined to 134.8 million in
2012-13 and to 132.4 million in 2013-14.

27. PROMOTE GENDER EQUALITY &
EMPOWER WOMEN
 Gender equality is a human right which entitles
all persons irrespective of their gender to live
with dignity and with freedom.
 Empowered women make invaluable
contribution to the improvement of health
conditions and educational status and
productivity of whole families and communities

28. REDUCE CHILD MORTALITY
 Children are the most valuable assets for every
country.
 A child’s life is highly vulnerable to various
diseases and substantial number of children
lose their lives every day all around the world.

29. IMPROVE MATERNAL HEALTH
 Maternal mortality ratio
The maternal mortality
ratio is the number of women who die from
any cause related to or aggravated by
pregnancy or its management (excluding
accidental or incidental causes) during
pregnancy and childbirth or within 42 days

30. COMBAT HIV AIDS & MALARIA
 HIV prevalence among pregnant women aged 15-24
years ,
 Condom use rate of the contraceptive prevalence rate,
Prevalence and death rates associated with Malaria
 Proportion of population in Malaria risk areas using
effective Malaria prevention and treatment measures,
 Prevalence and death rates associated with Tuberculosis .

31. ENSURE ENVIRONMENTAL
SUSTAINABILITY
 Proportion of land area covered by
forest
 Ratio of area protected to maintain
biological diversity to surface area
 Energy use per unit of GDP

32. Develop a global partnership for
development
 In co-operation with the private sector, make available the benefits of
new technologies, especially information and communication.

33. THANK YOU…………….