Question

My question is around the Dansby Willig index. The term Social Welfare is throwing me off. I know this is a measure of consumer and producer surplus. Is this a measure of shortage in the markets served and it is trying to state that as it total demand for the product is provided for therefor social welfare is improved? I don't really understand what this is supposed to tell us in this measurement so any clarification will be helpful.

Answer 1

ABOUT DANSBY WILLING INDEX --

The Dansby Willing Index or the performance index is the measure of the social welfare done by the producers by increasing the level of output in a socially efficient manner for the customers .

As social welfare = customers surplus + producers surplus .

this means that the social welfare is focused towards the efficient allocation of the goods and services in the economy and  summation of the producers surplus and the customers surplus . If the producer will increase the output as per the demand of the customers in the market and the customer is gaining its surplus by paying its desired amount that he/she is welling to pay for the product or the commodity , whereas the producer is deriving its surplus by earning profit that means the total amount paid for the product minus the cost of production . By this both customer is satisfied by paying its desired amount for the product and the producer is satisfied by gaining profit from the sale of the product .

By the satisfaction of both of them the social welfare in high and vise versa .