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Suppose that there are two people, Simon and Charity, whose total income is $200. The current distribution of income is such that they have $100
Suppose that there are two people, Simon and Charity, whose total income is $200. The current distribution of income is such that they have $100 each. For Simon, the utility function is of the form of Us = 40015 - 13 while for Charity, it is Uc = 4001c-317, where Ic and Is are amounts of income to Charity and Simon, respectively. a. What is the optimal distribution of income if the social welfare function (W) is of the form W = 20s +Uc? b. Describe the social welfare maximizing form of income redistribution. (That is who should be taxed and by how much and who should be given a government transfer and by how much). c. What is the optimal distribution of income if the social welfare function (W) is of the form W = Us +Uc? . d. Assume that the social welfare function is of the form as in (c) and society values only the utility of Charity. What is the optimal distribu- tion of income? What is the social welfare maximizing form of income redistribution in this case? Suppose that there are two people, Simon and Charity, whose total income is $200. The current distribution of income is such that they have $100 each. For Simon, the utility function is of the form of Us = 40015 - 13 while for Charity, it is Uc = 4001c-317, where Ic and Is are amounts of income to Charity and Simon, respectively. a. What is the optimal distribution of income if the social welfare function (W) is of the form W = 20s +Uc? b. Describe the social welfare maximizing form of income redistribution. (That is who should be taxed and by how much and who should be given a government transfer and by how much). c. What is the optimal distribution of income if the social welfare function (W) is of the form W = Us +Uc? . d. Assume that the social welfare function is of the form as in (c) and society values only the utility of Charity. What is the optimal distribu- tion of income? What is the social welfare maximizing form of income redistribution in this case
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