Leanzy Jenel Osunero April 16, 2022

BSBA FM 2-5 Mr. Oliver O. Ramallosa

Assignment 6

Research on Welfare and Equilibrium

1. The concept of welfare and equilibrium: partial and general equilibrium, uses of
general equilibrium theory.
Welfare

The study of how the distribution of resources and products impacts societal
wellbeing is known as welfare economics. This is linked to research into economic
efficacy and mobility, as well as how these two aspects affect people's global
macroeconomic well-being.

Equilibrium

When market supply and demand are in balance, a stable price is achieved. When
there is an excess of things and/or services, prices decrease, resulting in more
demand, and when there is a shortage, prices rise, resulting in reduced demand.
Supply and demand's balancing effect takes the situation to a condition of
equilibrium.

Partial Equilibrium

The term "partial equilibrium" refers to a research that focuses entirely on the
impact of a policy change on the market(s) affected directly. The economic links that
exist between a country's multiple markets are ignored in this research. In a partial
equilibrium scenario, all markets are represented at the same time and interact with
one another.
General Equilibrium

In order to understand the entire operation of the economy, general equilibrium

demands a detailed examination of a number of socio-economic factors, as well as
their linkages and interdependencies. It establishes causal linkages between changes
in service and commodity prices and volumes, as well as the overall economy.

The main applications of General Equilibrium Theory

Economic Equilibrium

It is an example of a well-balanced private-sector economy, with buyers seeking

maximum enjoyment and producers seeking maximum profit. There isn't any
squandering of resources. Everything is working well now. Economic efficiency is at
its peak, enhancing the community's economic well-being. As a consequence, it aids
in determining the elements that determine the pattern of an economy.

Understanding the Work of Economic System:

Even if it doesn't, the theory gives a conceptual framework for understanding the
actual behavior of an economic system by eliminating certain incorrect assumptions.
We can tell if the economy is running well or if something is going wrong. This
method may be used to assess and restore balance in circumstances when there is a
mismatch in equilibrium.

Understanding the Complex Problems of the Market:

A single economic event may also be predicted using the general equilibrium
model. Assume that demand for commodity A grows, resulting in a rise in price. As a
result, the prices of its replacements are falling, while the prices of its complements
are rising. As a result, demand for A may be reduced slightly. Demand for A may be
impacted even more if the price of productive services rises. As a result, the general
equilibrium analysis assists in a step-by-step understanding of the market's intricate
chains of interactions.

Understanding the Work of Pricing Process:

The general equilibrium analysis may be used to understand how the prices of
economic growth function. When relative prices change, three essential decisions for
the whole global economy are made: what to produce and how much to produce,
how to produce, and who will acquire them. Because changes in demand and supply
impact the pricing of the commodities and services they desire to develop, sell, and
acquire, local consumers and producers make these decisions. The general
equilibrium analysis aids in the integration of a wide range of individual decisions
influenced by price changes.

Understanding the Input-Output Analysis:

General equilibrium analysis provides the conceptual basis for Leontief's input-
output analysis. The family and industry are linked in an unseen integrative
framework of the economy's inputs and outputs in this technique, which is regarded
to be an ideal sort of general equilibrium analysis.
2. The conditions of optimum welfare: maximum consumer welfare, conditions of
efficiency and efficiency in exchange, the relationships of the household,
business, investment, government and foreign sectors using the circular flow of
income.
Conditions of Optimum Welfare

"Which market structures and arrangements of economic resources among

persons and productive processes will maximize the sum total utility
obtained by all individuals?" is a question that may be asked in the most
basic form of welfare economics. Consumer and producer surplus is
created through the interactions of consumers and sellers in competitive
marketplaces governed by supply and demand laws. Utility refers to a
person's perception of a product's or service's worth; people want to
optimize their utility via their activities and consumption decisions.

Pareto Efficiency

Because no resources can be allocated to make one person better off

without making at least one other person worse off, social welfare is
maximized when the economy is Pareto efficient. One of economic policy's
objectives may be to get the economy closer to this ideal state. Economists
have devised a number of criteria for judging whether a proposed change
in market conditions or government policy will help the economy achieve
this goal.

In general, this sort of cost-benefit analysis assumes that utility gains and
losses may be expressed in monetary terms. It also either overlooks or
believes that the existing quo represents some type of ideal on issues of
equity (such as human rights, private property, justice, and fairness).

Understanding the Circular Model

The basic purpose of the circular flow model is to comprehend how money
moves throughout an economy. It separates the economy into two groups:
households and businesses. It distinguishes between markets for goods
and services and markets for elements of production in which these
individuals participate. The circular flow model starts with the home
sector, which spends money, and concludes with the business sector,
which makes the products.
The government and foreign trade sectors are also included in the revenue
circular flow. The government injects money into the cycle through
spending on programs like Social Security and the National Park Service.
Exports, which bring in cash from international buyers, bring money into
 the circle. Furthermore, businesses that invest in capital stocks help to
keep money flowing into the economy.

3. Measurement of the country's performance using the expenditure, income and

industrial origin approaches and popular economic indicators.

Gross Domestic Product

The value of all final products and services generated in a country's economy
during a certain time period is known as GDP. GDP solely relates to products
manufactured within a single country. When a firm is located in one nation but
produces items in another, the goods are counted as part of the GDP of the
manufacturing country, not the company's home country. Despite the fact that BMW
is a German business, cars made in the United States are deemed American. The
Gross Domestic Product (GDP) is a metric used by economists to assess a country's
total productivity. The gross domestic product (GDP) per capita is frequently used as
a measure of a country's living standards. According to economic theory, GDP per
capita equals gross domestic income (GDI) per capita.

Determining GDP

GDP can be calculated in three different ways:

- the output (or product) method;
- the income strategy; and
- the method of expenditure

The product strategy is the simplest plan, and it entails averaging the results of
each organizational structure to arrive at a total. The expenditure model assumes
that a client would purchase all items, hence the overall product value must match
total consumer expenditures. The income method is based on the concept that the
earnings of producing factors must be equal to the price of their output. GDP is
calculated using this method by adding all of the earnings of all producers.

The Expenditure Approach

The expenditure approach only considers things that are intended to be sold.
There is output when you knit a sweater for yourself, but it is not counted as GDP as
it was never sold. The following are the components of GDP expenditure:

consumption + gross investment + government spending + (exports − imports)

The Production Approach

The manufacturing process is also known as Net Product or Value-Added

Manufacturing. This method is broken down into three stages:

- In a number of economic operations, estimating the gross value of the remaining

output;

- Evaluating intermediate consumption, or the material costs, resources, and services

used to produce final services or goods; and

- Subtract intermediary consumption from Gross Value to get the Net Value of Domestic
Output.

The Income Approach

Another method for calculating GDP is total income. When GDP is calculated in
this way, it is also known as Gross Domestic Income (GDI). The amount given by GDI
and the levels which allow by the spending method should be the same. However,
measurement errors will cause the two results to differ somewhat when published by
national statistical organizations in practice.

GDP is calculated using this method, which adds the incomes that businesses pay
households for various fields of manufacturing, such as labor wages, capital interest,
land rent, and entrepreneurial profits. The United States' "National Revenue and
Expenditure Accounts" divide revenue into five main categories:

- Wages, salaries and supplementary labor income

- Corporate profits
- Interest and miscellaneous investment income
- Farmers’ income
- Income from non-farm unincorporated businesses