Compensation Principle

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Compensation Principle

A notable advance in welfare economics since Pareto has been the Compensation principle. which is associated generally with the names of Waldorf Hicks and Tchaikovsky Assumptions. The important assumptions on which this principle is based re as follows

This principle can be privileged as follows Let  us consider the effects of economic   policy introduced by the Go in a society It is  possible then to divide into three   categories those  gain those who would lose and those remain unaffected Tn Dickensian terming s of indifference curves it means to a higher indifference  curve and er indifference curve  and still others w n the same indifference  curve   ere med about the wan sties of satisfy  that those who remain on the same e   curve are quite indifferent  about the e are therefore lest with  the gainers ans suppose   he persons who  have gained e the losers can offer  them sooth  the loser as  loving them  back to their Terence curve. If the gainers  are in a the losers to their  original  posit s move to an indifference  curve they were on after the initial change on the indifference curve  they were I C Before the policy measure  took place taken place in this situation that can an increase in welfare on the  part  lording to the advocates of this doctrine labelled as an increase in welfare.

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Compensation Principle