ABSTRACT
This chapter focuses on welfare economics, the study of normative issues that bear on economics. While focusing on standard welfare economic theory, it explains sources so students can explore the extra-welfarist view more fully. The chapter describes the standard results for competitive markets, but also the many market flaws that cause markets to deviate from competition, causing many competitive efficiency propositions to fail. It also explains the role of need and need-based distributions in the health economy. The chapter presents theories of social justice and explains why welfare economic claims must be grounded in a philosophical position on justice. It clarifies the meaning of economic efficiency within the context of the Edgeworth box for exchange. This approach derives theorems in a graphical framework that theorists have also developed in more sophisticated mathematical models. The social welfare function has proved flexible within health economics to formulate other conceptions of health equity.
