Question

Consider a society with 4 members: Justin, Andrew, Jagmeet and Elizabeth. The following table outlines the levels of total utility received from each dollar of income for each members of the society.

Income	Justin	Andrew	Jagmeet	Elizabeth
$1	15	32	20	16
$2	29	61	38	30
$3	42	87	54	42
$4	54	110	68	52
$5	65	130	80	60
$6	75	147	90	66
$7	84	161	98	70
$8	92	172	103	72

Assume that the society has the following income distribution:

Justin: $3
Andrew: $7
Jagmeet: $5
Elizabeth: $3

a. Is it possible for the government to increase total aggregate utility by redistributing income among members of society? Explain your answer.

b. Next, assume no one has any income to start with (income = $0 for everyone). Assume that the government has $19 to allocate among the four members of society. If the government is interested in distributing income in a way that maximizes aggregate total utility, how should it distribute the $19 of income?

c. Does the table above describe a situation characterized by diminishing marginal utility? Explain your answer.

Answer 1

Ans a) It is not at all possible to increase total aggregated utility from the given income distribution.

Ans b) Justin. $4

Andrew. $7

Jagmeet. $5

Elizabeth. $3

Ans c) Yes the above table illustrates the situation of diminishing marginal utility.

The additional increase in utility for all four gets lesser and lesser  with every additional increase in income .

Consider the case of Justin . His marginal utility goes down from $14 to $8 At $1 his utility was 15 . An increment in a dollar makes his marginal utility $14 which decreases to $12 with an additional increase in dollar .Subsequently it decreases to $8