Question

Suppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15 utils. If our goal is to maximize the combined total utility of Victoria and Fredrick, we should:

Answer 1

Answer: A

Suppose that the last dollar that Victoria receives as income

brings her a marginal utility of 10 utils while the last dollar that

Fredrick receives as income brings him a marginal utility of

15 utils. If our goal is to maximize the combined total utility of

Victoria and Fredrick, we should

a. Redistribute income from Victoria to Frederick

b. Redistribute income from Fredrick to Victoria

c. Not engage in any redistribution because the current situation already maximizes total utility

d. None of the above

Step-by-step explanation:

Marginal utility is the added satisfaction derived from consuming an additional unit of a good or service. In the above question, Fredrick derives more satisfaction from his last dollar than Victoria, and will therefore achieve a higher marginal utility with additional income than Victoria does with her current income. If we want to maximize the combined utility, we should redistribute income from Victoria to Fredrick.

The logic behind this is the diminishing marginal utility. The first unit of a good consumed gives the highest level of satisfaction, marginal utility reduces with additional units consumed.  In the same way, when we spend our income, we purchase the things that give us the maximum satisfaction first.

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