Answer to Question #199792 in Macroeconomics for Ayat

Question

How to define economic welfare?

Answer 1

Economic welfare can be defined as the economic prosperity in terms of the producer and consumer surplus.

Economic welfare as measured by the consumer and producer surplus is what is used to evaluate and asses the effects of changes in the market such as: demand, supply and quality of a product.

The sum of a producer and a consumer surplus can also be refered to as community surplus. The consumer surplus exists when the price the consumer is willing to pay in terms of their expected benefits is greater than their actual pay while the producer surplus exists when the price the producer is prepared to supply at is less than the actual market price.