Which of the following will occur when government policies to make income distribution more equitable? (i) total utility is constant
(ii) the allocation of resources is less efficient
(iii) incentives are distorted

Question

Quizplus · Accepted Answer

When government policies aim to make income distribution more equitable, resources are allocated less efficiently and incentives are distorted. This is because higher taxes on the wealthy and more generous welfare programs decrease the incentive to work hard and innovate since individuals may feel less motivated to do so when they know their income is going to be redistributed. This can lead to a decrease in productivity and economic growth. Therefore, (ii) and (iii) are the correct choices. Total utility may or may not be constant depending on the specific policies implemented, so (i) may or may not be true.

Which of the Following Will Occur When Government Policies to Make