Publisher Summary This chapter focuses on welfare economics. Welfare economics can be considered as the normative branch of economics and it attempts at a valuation of the policy goals. It is concerned with the well-being of a group or of society as a whole. It must evaluate the various states in which an economy can be found. Each state would involve a different consumption and production pattern, a different distribution of factors and a different distribution of income. In discussing welfare, some value judgements have to be made. It must be agreed from the outset whether the statement that social preferences depend only on the members who compose that society should be accepted. The chapter presents the ethical postulate of Arrow, which states that society's preferences depend upon the preferences of the individuals in that society and on none outside that society. Although this belongs to ethics, an economist cannot begin to analyze the well-being of society without such postulate. Even the Pareto ranking, which appears the least objectionable, is dependent upon this ethical postulate.