Question

Political philosophy is the dominant factor in determining how equitable a distribution of income is within an economy. Explain how a Utilitarian, Liberal, and a Libertarian would recommend income be distributed among the members of an economy. Name two types of government transfers that redistribute resources from richer to poorer members of the economy.

Answer 1

Utilitarian Income distribution- It is related to one of equal marginal utilities. The utilitarian would recommend the solution to the maximization problem subject to total income is to distribute income so that everyone's MU is the same. Marginal Utility(MU) is the gain in utility level from a unit increase in income.Government should choose policies to maximise the total utility of everyone n society.

Liberals- More equal distribution of market income. Liberals believe in social obligation to lessen down market income differentials. According to liberals, if a more equal distribution of education is pumped into the economy, the economy would give out a more equal distribution of income.Hence, the need for income transfer payments would go away and so the social welfare programs.

Libertarian believe in strong rights to individual liberty and private property, free market economy. Libertarians argue that society itself earns no income, only individual members of society earn income.They believe that government should not take from some individuals and give to others to achieve any particular redistribution of income. No redistribution of income.

Two types of government transfers that redistribute resources from rich to poor members of the society are subsidies and vouchers such as food stamps. These transfer payment programs are funded through general mode of taxation but can benefit the poor's. Another transfer is in the form of progressive income tax, a high income earner will pay a higher tax rate than a low income earner.