Answer to Question #131712 in Finance for Farah

Question

The redistribution of any single good (or factor) by the government guarantees that each and every commodity produced and consumed in the economy will be fairly distributed among members of society. Explain the logic of this argument in a 3x2x2 economy and its underlying assumption(s). What does the theorem imply about a 1x1x1 economy (A simple Robinson Crusoe world with no capital and only coconuts to eat).

Answer 1

Redistribution of income and wealth is the transfer of income and wealth (including physical property) from some individuals to others by means of a social mechanism such as taxation, charity, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law. The logic of this argument in a 3x2x2 economy is to reduce poverty, charge less tax from lower income, and gain a welfare.

The theorem doesn't imply about a 1x1x1 economy, because there is no need for redistribution.