Static Optimisation and Welfare Measurement Model: Lagrangean Approach

Abstract

Mathematical models are important as a means of predictions. This thesis set out to develop a welfare measurement model. Welfare is concerned with evaluation of alternative economic situations from the point of view of the society's well-being. The measure of welfare is derived from people's . demand for goods and services, that is, people are in a stable state when their demand for goods and services is improved. The Lagrangean methods (both ordinary and modified) of solving constrained optimisation problems have been used in developing this model. Generalized objective and constraint functions have been used in developing individual demand .estimates from which, through lateral summation, group demand estimate is achieved. Time factor has also been included in this model to activate prediction. The model is of significance to the industrial sector because of its rigour in estimating the market size, and thus lessening resource misallocation. Also through the people's demand estimates, any government may determine the welfare state of its people and thus make an appropriate decision. The model derived in this thesis is in discrete form. Future researchers may improve on this by attempting to model a demand equation on a continuous time basis.