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If income distribution becomes more equal and marginal utility declines with income why may total social utility rise at the same GDP?

Answer and explanation

Correct answer: Because transferring income to a lower-income person may yield greater marginal utility

The governing idea is diminishing marginal utility of income: an additional unit of income generally gives more satisfaction to a poorer person than to a richer person who already has more resources. If some income is transferred toward lower-income households while total GDP remains unchanged, the utility gain for recipients can exceed the utility loss for donors. Hence C is correct. A reverses the principle, B changes GDP without basis, and D is an absurd absolute claim.

Related tags

GdpWelfareMarginal-UtilityIncome-DistributionEqualityGdp And WelfareNational Income And Related AggregatesEconomics

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