Explain the big tradeoff. What idea of fairness has been developed to deal with it?
What will be an ideal response?
The big tradeoff is the tradeoff between efficiency and fairness. Redistributing incomes changes the incentives facing producers and consumers. Taxing income decreases producer surplus and taxing purchases decreases consumer surplus. Producers produce less and consumers consume less, and total economic activity declines, such that the size of the economic pie decreases. The big tradeoff has led to the idea that the fairest distribution is that which makes the poorest person as well off as possible.
You might also like to view...
Describe the Asian financial crisis as it unfolds beginning with the devaluation of the Thai currency in July 1997, followed by the Malaysian, Indonesian and South Korean crises
As part of your answer, elaborate on the Malaysian response to the crisis versus its troubled neighbors responses.
Were Social Security benefits to cease, almost half of all older Americans would fall into poverty
Indicate whether the statement is true or false