It has been argued that Senior Citizens should pay lower prices for telephone service through per-unit...

It has been argued that Senior Citizens should pay lower prices for telephone service through per-unit subsidies which are financed by higher taxes on telephone service for working adults.

As an economist what would you propose?

Agree with the proposal because it improves the equality wealth in society.
Disagree with the proposal in principle because redistribution of income is always inefficient.
Argue for a new proposal that gives a lump-sum subsidy to Senior Citizens financed through a lump-sum tax on working adults since this allows the market to allocate resources efficiently through market prices.
Let Senior Citizens and Working Adults negotiate between themselves so that they can trade with each other to reach a Pareto Efficient allocation.

Expert Solution

Answer : B. Disagree with the proposal in principle because redistribution of income is always inefficient.

As the net income of individuals whether they are young adults or senior citizens is after the deduction of various taxes payable by them to the economy. In the broadsum category of senior citizens, there will be those with high social security benefits such as pensions, large savings, retirement plans by former employees and those reaping strategic investment plans. They don't have to be exempted from paying the normal tax rates just because of the age criteria.

But rather, those senior citizens who earned less during their employment period may earn lesser than that during their later ages. And a large number of aged population still find it hard to earn for a living. They are the people who need to be exempted from paying higher taxes than broadly categorizing the old age people as a whole.

Exceptions that are given based on income levels as a sub category to old age benefits will be a better alternative.

Rahul Sunny answered 2 years ago

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