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Why may welfare rise if income is redistributed from rich families to poor families while total income remains unchanged?

Answer and explanation

Correct answer: Because poor families can meet necessities with additional income

The relevant concept is diminishing marginal utility of income. An additional unit of income usually gives less extra satisfaction to a rich family than to a poor family that cannot adequately afford food, housing, health care, or education. If redistribution helps the poor meet these necessities, total social welfare can rise even though aggregate income and output remain unchanged. Options A, C, and D do not follow from redistribution.

Related tags

Income RedistributionMarginal UtilitySocial WelfareInequalityGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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