Alfred Marshall, Prof.A.C Pigou and J.R.Hicks say that there is a close relationship between economic welfare and national income, because both of them are measures in terms of money. When National income increases, total welfare also increases and vice versa.

The effect of national income on economic welfare can be studied in two ways:

• By change in the size of national income. 
• By change in the distribution of National income.

(i) The change in the size of National Income: The positive change in the national income increases its volume. As a result people consume more of goods and services, which leads to increase in the economic welfare. Whereas the negative change in national income, results in reduction of its volume. People get lesser goods and services for consumption which leads to decrease in economic welfare.

(ii) The change in the distribution of National Income: The distribution of national income takes place in two ways, firstly, by transferring wealth from poor to rich and secondly from the rich to the poor. But, it is advisable to follow the second way in distribution of national income.

The actual relation between the distribution of national income and economic welfare concerns the transfer of wealth flow from the rich to the poor. The redistribution of wealth in favour of the poor is brought about by reducing the wealth of the rich and increasing the income of the poor.

Thus, the increase in national income leads to increase in economic welfare provided that the income of the poor increases instead of decreasing and they improve their standard of living and that the income of the rich decreases in such a way that their productive capacity, investment and capital accumulation do not decline.