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.
Frequently asked questions
What is the correct answer to this question?
Because poor families can meet necessities with additional income
Why is this the correct answer?
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.
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.
