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: Suppose that an economy is composed of three individuals with incomes y = 100, Y2 = 50 and y3 = 150. All individuals

: Suppose that an economy is composed of three individuals with incomes y = 100, y2 = 50 and y3 = 150. All

: Suppose that an economy is composed of three individuals with incomes y = 100, Y2 = 50 and y3 = 150. All individuals have an identical utility function u;= In(yi). The government wants to implement an income redistribution programme which will result in individual 3 paying 20 individual 2. Calculate the social welfare of this economy before and after the programme, and comment on the overall effect of the programme under the scenarios below. Highlight which features of the utility or welfare functions are responsible for the effect you find. a) The government is utilitarian b) The government is Rawlsian c) (Harder) The government applies the following social welfare function, proposed by Amartya Sen: W = U(1-G), where U is the average utility, and G is the Gini coefficient - a measure of inequality which, in this case, can be calculated as: G = |uU+UU3| + |u - u31 3(U+U + U3)

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ANSWER IN DETAILS a Utilitarian Social Welfare Function Before the programme The social welfare function of the economy is simply the sum of the utilities of its individuals Wy ln100 ln50 ln150 342 Af... blur-text-image

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