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.
Frequently asked questions
What is the correct answer to this question?
Additional income to poorer groups may provide greater marginal satisfaction
Why is this the correct answer?
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.
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.
