Question

4. Evaluate: Income should be redistributed from the rich to the poor because the marginal utility of income is lower to the former.

Answer 1

Scarcity is the reason for the difference between the rich and the poor in society and this difference is termed as the Income Gap or Income Inequality. The purpose of Income Redistribution is to solve or at least minimize the gap between the poor and the rich.

Income distribution is extremely important for development, since it influences the cohesion of society, determines the extent of poverty for any given average per capita income and the poverty-reducing effects of growth, and even affects people's health.

Marginal utility is a concept from economics that describes the change in utility from consuming more or less of a good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that consuming the first unit usually has a higher utility than every other unit. Since rich have high income , so they can get most of the goods and services.As they keep on satisfying more of their demands the marginal utility of each demand keeps on reducing, as per law of dimnishing marginal utility. This high income should be redistributed to poor as the marginal utility in case of poor people will be more as most of their wants are not being satisfied due to poverty.