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.
Frequently asked questions
What is the correct answer to this question?
Because transferring income to a lower-income person may yield greater marginal utility
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
