The marked impact of the welfare gap on total welfare within collectives has rarely, if at all, been addressed in traditional welfare theories and in Amartya Sen’s theory of welfare functioning and capabilities. With this observation as our starting point, we constructed a research framework that combined welfare functioning, the welfare gap, and welfare capability to assess and analyze changes in the welfare of farmers whose land was requisitioned in Zhejiang province. The findings of our study were as follows. (1) The total welfare functioning of farmers whose land was requisitioned increased by 11.8% as a result of improvements in economic and dwelling conditions and community surroundings. However, social security and psychological conditions deteriorated. (2) Although total welfare functioning has improved, gaps are widening in the distribution of welfare functioning among farmers who underwent land requisition. This was evidenced by the increase of the weighted Gini coefficient, which rose from 0.26 to 0.32 after land requisition. (3) As a result of the improvement in welfare capability, a judgmental bias is evident when farmers assess whether they have gained or lost welfare after land requisition. We conclude that welfare studies should focus not only on the quantitative aspects of welfare distribution, but should also pay more attention to its fairness and impartiality. This can prevent social problems posed by an oversized welfare gap. Moreover, after land requisition, the government and community should provide education and training services, and the current one-time compensation model should be replaced by a lifelong compensation model. At the same time, endowment insurance should be extended in rural areas and urban medical insurance should be progressively incorporated into the social security benefits of farmers who have undergone land requisition.