ng.cengage.com/static/nb/ul/\'ndex.ntmi?nold 10 anthwde 5% MINDTAP Homework (Ch
ID: 1107867 • Letter: N
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ng.cengage.com/static/nb/ul/'ndex.ntmi?nold 10 anthwde 5% MINDTAP Homework (Ch 20) Due on Dec 10 at 11 PM CST Consider a society comprised of two people. Edison earns an income of $90,000 per year and Hilary earns an income of $35,000 per year. The government is considering a redistribution plan that would impose a 20% tax on Edison's income and give the revenue to Hilary. Without any incentive distortion, Edison would retain $72,000 and Hillary would end up with $53,000. However, let us assume that since Edison will not receive all the income he earns, he decides to work less and earn an income of only $80,000, of which 20% × S80.000 $ 16,000 will be owed in taxes With the redistribution plan, Edison will take home an income of $ The $16,000 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 $34,000 instead of her initial $35,000 With the redistribution plan, Hilary's total income (including the government payment recelved) is nows Without a redistribution plan, total income in this society is After the redistribution plan is implemented, total income in this society Therefore, the redistribution plan total income in this society According to the libertarian political philosophy, the government- implement this redistribution plan. Why? Total socletal utility will increase if the plan is enacted. The plan benefits Hilary, who is the least well off member of society. The government is not entitled to take money away from one person and give it to anotherExplanation / Answer
As Edison (E) started earning $80000 and govt imposing taxes of 20% to it Take home income for E is $64000, Hilary (H) has started to earn $1000 less from $35000 to $34000 and according to redistribution plan (H) she would earn $16000+$34000 = $50000.
Without redistribution plan society was earning total income = H's income + E's income =$35000+$90000 = $125000
With redistribution plan Society will earn = H's income after redistribution plan adjustment + E's income after redistribution plan adjustment = $64000 + $50000 = $114000
Hence Redistribution plan reduces the total income in this society.
Government should implement the redistribution plan the plan benefis hilary who is the least well off member of society. As money has diminishing marginal utility we should transfer money from rich to poor as long as it doesnt take away an incentive to work.
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