The capability approach argues that well-being is determined by the capabilities that people have, rather than the resources they possess. Capabilities are the things that people are able to do or be, such as being able to live a long and healthy life, being able to participate in society, and being able to choose how to live their lives.

Instrumental capabilities are the capabilities that people need in order to achieve their goals, such as being able to read and write, being able to work, and being able to access healthcare. Functional capabilities are the capabilities that people need in order to live a good life, such as being able to be healthy, being able to participate in society, and being able to choose how to live their lives.

Capabilities are necessary for well-being, but they are not sufficient. In order to achieve well-being, people also need to have the opportunity to exercise their capabilities. For example, a person may have the capability to be healthy, but if they do not have access to healthcare, they will not be able to achieve good health.

A person's capabilities can be affected by a variety of factors, including personal characteristics, social factors, economic factors, and environmental factors. For example, a person who is disabled may have difficulty exercising their capabilities, a person who is poor may not have the resources to exercise their capabilities, and a person who lives in a polluted environment may have difficulty achieving good health.

The capability approach can be used to assess economic welfare by measuring the capabilities that people have. This can be done by looking at a variety of factors, such as people's health, education, income, and access to social services.

The capability approach has been criticized for being too abstract and difficult to apply in practice, for ignoring the importance of personal responsibility, for being too focused on individual capabilities and neglecting the importance of social factors, and for being too static and not taking into account the dynamic nature of well-being.

The capability approach remains a valuable tool for assessing economic welfare because it provides a comprehensive framework for thinking about well-being, it is based on a sound ethical foundation, it is capable of capturing the multidimensional nature of well-being, and it is sensitive to the importance of individual agency and social context.

The capability approach was developed by Amartya Sen, an Indian economist and philosopher.

The capability approach and the utilitarian approach to economic welfare differ in a number of ways. The capability approach focuses on the capabilities that people have, while the utilitarian approach focuses on the happiness that people experience. The capability approach is based on a rights-based approach to justice, while the utilitarian approach is based on a consequentialist approach to justice. The capability approach is more concerned with the distribution of well-being, while the utilitarian approach is more concerned with the maximization of well-being.

The capability approach and the Rawlsian approach to economic welfare differ in a number of ways. The capability approach focuses on the capabilities that people have, while the Rawlsian approach focuses on the resources that people possess. The capability approach is based on a rights-based approach to justice, while the Rawlsian approach is based on a consequentialist approach to justice. The capability approach is more concerned with the distribution of well-being, while the Rawlsian approach is more concerned with the maximization of well-being.

The capability approach and the Nozickian approach to economic welfare differ in a number of ways. The capability approach focuses on the capabilities that people have, while the Nozickian approach focuses on the rights that people have. The capability approach is based on a rights-based approach to justice, while the Nozickian approach is based on a libertarian approach to justice. The capability approach is more concerned with the distribution of well-being, while the Nozickian approach is more concerned with the protection of individual rights.

The capability approach and the Friedmanian approach to economic welfare differ in a number of ways. The capability approach focuses on the capabilities that people have, while the Friedmanian approach focuses on the freedom that people have. The capability approach is based on a rights-based approach to justice, while the Friedmanian approach is based on a consequentialist approach to justice. The capability approach is more concerned with the distribution of well-being, while the Friedmanian approach is more concerned with the maximization of economic growth.

The policy implications of the capability approach include a focus on expanding people's capabilities, rather than simply increasing their incomes; a focus on reducing social and economic inequalities; a focus on promoting human rights and social justice; and a focus on protecting the environment and promoting sustainable development.

There are a number of challenges to implementing policies based on the capability approach. These challenges include the difficulty of operationalizing the capability approach in practice, the high cost of implementing policies based on the capability approach, and the political unpopularity of policies based on the capability approach.