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Why may welfare rise when income is redistributed toward the poor while total output remains unchanged?

Answer and explanation

Correct answer: Because the basic needs of the poor may be met better

The governing concept is diminishing marginal utility of income. An additional unit of income generally provides greater welfare to a poor household because it can purchase food, medicine, education or secure housing, whereas the same unit may add less satisfaction for a rich household. Redistribution can therefore improve overall welfare even when total output is unchanged. Options A, C and D describe effects that need not occur.

Related tags

Income RedistributionPoor HouseholdsBasic NeedsWelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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