Why do societies face a tradeoff between the size of the economic pie and the degree of equality with which it is shared?
What will be an ideal response?
A person's share of the economic pie is determined by his or her income. To increase the degree of equality, income must be redistributed away from richer people and towards poorer people. Income is transferred from the rich to the poor by means of taxes. Taxes discourage work and saving. Because people work less, the nation's output decreases. When saving decreases, so does investment in capital, which also decreases the nation's output. Thus taxes that redistribute income in order to make for a more equal income distribution decrease the nation's output, that is, shrink the economic pie.
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Which of the following statements is true about public goods?
a. They are always produced by the government. b. The market-determined output is efficient. c. The government can hire a private entity to produce a public good. d. Nonexcludability is sufficient condition for a good to classified as a public good.
Cost-of-service regulation allows regulated companies to charge prices that
A) reflect the cost of regulating the industry, plus the marginal cost of the product. B) allow monopoly profits to the producer. C) reflect the actual average cost of providing the services to the customer. D) are determined by competition in other geographic markets.