For which item(s) does diminishing marginal utility provide a good justification?
I. the social safety net
II. government transfers
III. the income tax structure
IV. Pigouvian subsidies

Question

Quizplus · Accepted Answer

Diminishing marginal utility suggests that as an individual acquires more of a good, the additional satisfaction (utility) they get from each additional unit decreases. This concept justifies the social safety net, government transfers, and progressive income tax structures because it implies that transferring resources from wealthier individuals (who receive less marginal utility from each additional unit of income) to poorer individuals (who receive more marginal utility from each additional unit of income) can increase overall societal welfare. Pigouvian subsidies, however, are designed to correct negative externalities in the market and are not directly justified by the concept of diminishing marginal utility.

For Which Item(s) Does Diminishing Marginal Utility Provide a Good