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Consider a society consisting of two people. Larry earns an income of $85,000 per year and Megan earns an income of $30,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Larry's income and give the revenue to Megan. Without any incentive distortion, Larry would retain $63,750 and Megan would end up with $51,250. However, let us assume that since Larry will not receive all the income he earns, he decides to work less and earn an income of only $75,000, of which 25% x $75,000 = $18,750 will be owed in taxes. With the redistribution plan, Larry will take home an income of $ The $18,750 that Larry pays in taxes will be transferred by the government to Megan. Let us assume that since Megan now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Megan's total income (including the government payment received) is now $ Without a redistribution plan, total income in this society is $ After the redistribution plan is implemented, total income in this society is $ Therefore, the redistribution plan increases total income in this society. According to the utilitarian political philosophy, the decreases sferred from Larry to Megan will benefit Megan than it hurts Larry. Which of the following statements is true according to this philos, increases The government should not institute the plan because it has no right to take money from one person and give it to another. The government should definitely institute the plan because it will increase overall utility. The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss.government is considering a redistribution plan that would impose a 25% tax on Larry's income and give the revenue to Megan. Without any incentive distortion, Larry would retain $63,750 and Megan would end up with $51,250. However, let us assume that since Larry will not receive all the income he earns, he decides to work less and earn an income of only $75,000, of which 25% x $75,000 = $18,750 will be owed in taxes. With the redistribution plan, Larry will take home an income of $ The $18,750 that Larry pays in taxes will be transferred by the government to Megan. Let us assume that since Megan now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Megan's total income (including the government payment received) is now Without a redistribution plan, total income in this society is $ . After the redistribution plan is implemented, total income in this society is $ Therefore, the redistribution plan increases total income in this society. According to the utilitarian political philosophy, the $18,750 transferred from Larry to Megan will benefit Megan than it hurts Larry. Which of the following statements is true according to this philosophy? less The government should not institute the plan because it has no right to take money more he person and give it to another. The government should definitely institute the plan because it will increase overall utility. O The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss
