Question

“If we take $1 away from a rich person and give it to a poor person, the rich person loses less utility than the poor person gains.” Do you agree?

Answer 1

Yes I agree with the statement .

The utility goes on decreasing with the consumption of more and more units and also the marginal utility. Hence the rich person will lose very less amount of utility by donating $1 because he has reached that level of utility where the marginal utility lost would be very less. Hence he will not become poor by donating $1.

On the other hand since the poor person lacks money hence the utility which he will gain after getting $1 will be higher than what the rich person will lose by donating. Also it will add up more in the marginal utility of the poor person. The utility is very high when the units are very less for consumption. Hence $1 will add up in the TU of poor.