Question

Describe the role that diminishing marginal utility plays in the utilitarian argument or redistribution of income?

Please explain in less than 5 sentences. Thanks

Answer 1

Diminishing marginal utility marginal utility has an important role in redistribution of income. Marginal utility of money is higher for a poor man than a rich man. This is because if a person is having only a very less amount of money with him, the marginal utility derived from each unit of money will be greater. While if a person is having more money, the utility derived from each unit of money will be less. This law is having a role in taxation by government on the basis of ability to pay. When the rich people are taxed by government, some amount of money is taken away from them which improve the utility derived from the remaining amount of money. The money taxed from rich people will spend for the welfare of the poor by the government. The law of diminishing marginal utility had an important role in determining the ability of people to pay taxes.