Why may welfare rise when income is redistributed toward the poor while total output remains unchanged?
Answer and explanation
Correct answer: Because the basic needs of the poor may be met better
The governing concept is diminishing marginal utility of income. An additional unit of income generally provides greater welfare to a poor household because it can purchase food, medicine, education or secure housing, whereas the same unit may add less satisfaction for a rich household. Redistribution can therefore improve overall welfare even when total output is unchanged. Options A, C and D describe effects that need not occur.
Frequently asked questions
What is the correct answer to this question?
Because the basic needs of the poor may be met better
Why is this the correct answer?
The governing concept is diminishing marginal utility of income. An additional unit of income generally provides greater welfare to a poor household because it can purchase food, medicine, education or secure housing, whereas the same unit may add less satisfaction for a rich household. Redistribution can therefore improve overall welfare even when total output is unchanged. Options A, C and D describe effects that need not occur.
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.
