A group of 10 people have the following annual incomes: $55,000, $30,000, $15,000, $20,000, $35,000, $80,000, $40,000, $45,000, $30,000, $50,000. Complete the table.
|
Income |
Quintile |
Share of Income |
|
$15,000 |
Bottom |
|
|
$20,000 |
||
|
$30,000 |
2nd |
|
|
$30,000 |
||
|
$35,000 |
3rd |
|
|
$40,000 |
||
|
$45,000 |
4th |
|
|
$50,000 |
||
|
$55,000 |
Top |
|
|
$80,000 |
If $4000 is taxed from the top earner and transferred to the lowest earner, would that increase or decrease the share of income held by the top quintile?
Would this transfer increase or decrease the share of income held by the bottom quintile?
Would this have any effect on the 2nd quintile? The 3rd? The 4th?
Would this transfer increase, decrease, or have no effect on income inequality in this group?
Redistributing income from the highest earner to the lowest one would reduce the utility of the top earner and increase the utility of the lowest earner. But what would happen to overall utility in the economy? Would it increase, decrease, or remain the same? Explain your answer. (Hint: does the marginal utility of income diminish as one earns more?)