2. Comment on or explain: a. Endowing everyone with equal income will make for v
ID: 1162044 • Letter: 2
Question
2. Comment on or explain: a. Endowing everyone with equal income will make for very unequal enjoyment and satisfaction. b. Equality is a "superior good"; the richer we become, the more of it we can afford. c. The mob goes in search of bread, and the means it employs is generally to wreck the bakeries. d. Some freedoms may be more important in the long run than freedom from want on the part of every individual. e. Capitalism and democracy are really a most improbable mixture. Maybe that is why they need each other-to put some rationality into equality and some humanity into efficiency. f. The incentives created by the attempt to bring about a more equal distribution of income are in conflict with the incentives needed to generate increased income.Explanation / Answer
Ans.
a) According to marginal utility theory , by equalizing incomes in an economy there is probability of maximizing total utility for all individuals. Where it is assumed that everyone has identical diminishing marginal utility of money schedules.But distribution of equal income ensures unequal enjoyment and satisfaction. For example person having 10 years of experience as a professor having doctorate degree gets same income as compared to person having 1 year of experience as professor having masters degree. Person having more experience will not be satisfied with equalized income.
b) The wealthier members of society have satisfaction of living in more equitable society as poverty reduces providing them indirect benefits such as social peace and physical security.To get these benfits the affluent members of society are willing to spend more as they are better off.
c) The mob here is market preference for present consumption over future consumption.Due to independent decision making ,income redistribution schemes fails as they decrease the incentive to accumulate capital in order to provide present consumption to poor.It does not necessarily means that such income redistribution schemes are misguided.
d) It means that civil and political autonomy are more important than universal eradication of poverty.Liberals contend that ensurimg universal freedoms from wants does not necessarily diminishes worth of fundamental freedom.
e) The principle that summarizes both system is : each dollar has a vote in the marketplace and each person has a vote at the ballot box.This principle of democracy and capitalism are similar as the presence of one leads to the other and dissimilar due to type of society that arises from combination of both systems represents workable social compromise.
f) The incentives created to bring equal distributuion of income causes trade-off in form of decreased economic efficiency.The high marginal taxes will reduce the efforts of those workers who work hard and produce more whereas gretaer benefits to workers at bottom who work less harder reduce incentive to work as they receive benefits without any effort.Due to such trade offs there is reduction in economic growth and damage to incentives leading to increased incomes
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