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Why may social welfare rise if real GDP remains constant but income distribution becomes more equal?

Answer and explanation

Correct answer: Additional income to poorer groups may provide greater marginal satisfaction

The relevant concept is the relationship between income distribution, marginal utility and welfare. Because poorer households generally have greater unmet needs, transferring some income toward them may generate more additional satisfaction than the same income gives to richer households. Thus, even with unchanged real GDP, total welfare may rise. Option B is not necessary, while C and D incorrectly deny the welfare effect or claim an automatic GDP increase.

Related tags

Income DistributionMarginal UtilitySocial WelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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