redistribution. Suppose Income (on the X-axis) ranges from 0 to 100, and Utility (on the Y-axis) is always given by the function U[Income] = √Income. Suppose incomes are 100, 25, and 0 for the upper, middle, and lower class. a) Find the total utility for this society. HINT: Sum the initial utility levels for the three classes. b) Suppose we took 36 away from the upper class and gave it to the lower class. Did the total utility rise, fall, or stay the same as a result of this income redistribution? c) The textbook addresses Arthur Okun's “leaky bucket,” the idea that when income is redistributed by a bureaucracy, some of the income being transferred is lost. Considering the redistribution in part (b), how much income could be wasted before society would be no better off than before? HINT: Post-Transfer Total Utility - Leak = Pre-Transfer Total Utility. Assume that the of the 36 taken from the upper class, only 36-X makes it to the lower class.

redistribution. Suppose Income (on the X-axis) ranges from 0 to 100, and Utility (on the Y-axis) is always given by the function U[Income] = √Income. Suppose incomes are 100, 25, and 0 for the upper, middle, and lower class. a) Find the total utility for this society. HINT: Sum the initial utility levels for the three classes. b) Suppose we took 36 away from the upper class and gave it to the lower class. Did the total utility rise, fall, or stay the same as a result of this income redistribution? c) The textbook addresses Arthur Okun's “leaky bucket,” the idea that when income is redistributed by a bureaucracy, some of the income being transferred is lost. Considering the redistribution in part (b), how much income could be wasted before society would be no better off than before? HINT: Post-Transfer Total Utility - Leak = Pre-Transfer Total Utility. Assume that the of the 36 taken from the upper class, only 36-X makes it to the lower class.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter17: Income, Poverty, And Health Care

Section: Chapter Questions

Problem 4P

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