a. What is the total level of satisfaction in this economy? b. On the graph, move points A and B to show a redistribution of $40,000 from Ahmed to Bob. c. After the redistribution in part b, what is the total level of satisfaction in this economy?

a. What is the total level of satisfaction in this economy? b. On the graph, move points A and B to show a redistribution of $40,000 from Ahmed to Bob. c. After the redistribution in part b, what is the total level of satisfaction in this economy?

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter20: Income Inequality And Poverty

Section: Chapter Questions

Problem 5PA

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Question

Inequality, Social Insurance, and Redistribution — End
of Chapter Problem
Assume there are two individuals in the economy, Ahmed
and Bob. The graph depicts the well-being curve, which plots
the average level of satisfaction, for both at each level of
income. Point A represents Ahmed's annual income and level
of satisfaction and point B represents Bob's.
a. What is the total level of satisfaction in this economy?
b. On the graph, move points A and B to show a
redistribution of $40,000 from Ahmed to Bob.
c. After the redistribution in part b, what is the total level
of satisfaction in this economy?
d. Which of the following are drawbacks to
redistribution of income? Select all that apply.
Income redistribution reduces the incentive to work.
The administrative costs will reduce the amount of
money to be redistributed.
Income redistribution leads to more tax avoidance.
Satisfaction
10
9
to
8
7
6
3
2
1
0
0
B
40,000
80,000
Annual Income
120,000
160,000
A
200,000

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Step 3: b. On the graph, move points A and B to show a redistribution of $40000 from Ahmed to Bob:

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Step 4: c. After the redistribution in part B, the total level of satisfaction in this economy:

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