ABSTRACT
It has always been an important task of economics to assess individual well-being and social welfare. The question of which economic states, or situations, should be considered ‘good’ and which developments could lead to better states has been of central concern to economists (Cooter and Rappoport 1984; Sen 1987). In theoretical welfare economics, the measuring rod for welfare is the satisfaction of the given and fixed preferences of the individual. Based on some additional assumptions regarding the preference structures (completeness, transitivity), an ordinal utility function u(•) can be constructed for which holds that ∀x, y : x y ⇔ u(x) ≥ u(y) (where x, y are commodity vectors and denotes a preference relation). This ordinal utility concept is usually assumed to be interpersonally non-comparable. It is then examined how changes in income or prices affect utility with given preferences. That is, from t0 to t1, the preference structure has not changed, but some prices and/or an individual’s income have. Based on these changes, different solutions to the utility maximization problem exist, and one can calculate whether ut1(x) is larger or smaller than ut0(x).
