Consider a society comprised of two people. Edison earns an income of $100,000 p
ID: 1205064 • Letter: C
Question
Consider a society comprised of two people. Edison earns an income of $100,000 per year and Hilary earns an income of $30,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Edison's income and give the revenue to Hilary. Without any incentive distortion. Edison would retain $75,000 and Hilary would end up with $55,000. However, let us assume that since Edison will not receive an the income he earns, he decides to work less and earn an income of only $90,000, of which 25%times $90,000-22,500 will be owed m taxes. With the redistribution plan, Edison will take home an income of. The $22,500 that Edison pays in taxes will be transferred by the government to Hilary. Let us assume that since Hilary now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Hilary's total income (including the government received) is now. Without a redistribution plan, total income in this society is. After the redistribution plan is implemented, total income in this society is. Therefore, the redistribution plan___ total income m this society. According to the utilitarian political philosophy, the $22,500 transferred from Edison to Hilary will benefit Hilary___than it hurts Edition. Which of the following statements is true according to this philosophy? The government should not institute the plan because it has no right to take money from one person and give to another. The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss. The government should definitely institute the plan because it will increase overall utility.Explanation / Answer
With the redistribution plan , edison will take home an income of $ 52,500
With the redistribution plan , Hillary's total income = $ 51,500
Without redistribution plan , total income in the society is = $ 130,000
After the redistribution plan is implemented , the total income in the society = $ 104,000
Therefore the redistribution plan reduces the total income in the society .
According to the Utilitarian political philosophy , the $ 22,500 ttransferred from Edision to Hillary will benefit Hillary more than it hurts edison .
The correct option is C
Explanation : According to the Utilitarina political philosophy the case for redistributing income is based on the assumption of diminishing marginal utility . It seems reasonable that a dollar of income provides a poor person with more additional utility than an extra dollar to a rich person . Thus the redistribution of income raises total utility which is the Utilitarian objective .