Suppose there are only two people in an economy. Under the income tax system, the marginal...

 

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Suppose there are only two people in an economy. Under the income tax system, the marginal revenue of a 1% tax increase on Harry is $50, and the marginal revenue of a 1% tax increase on Sally is $30. The marginal utility of Harry is 30 utils, and the marginal utility of Sally is 20 utils. To make the income tax optimal, should be taxed more, and should be taxed less. Suppose there are only two people in an economy. Under the income tax system, the marginal revenue of a 1% tax increase on Harry is $50, and the marginal revenue of a 1% tax increase on Sally is $30. The marginal utility of Harry is 30 utils, and the marginal utility of Sally is 20 utils. To make the income tax optimal, should be taxed more, and should be taxed less.

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To determine the optimal taxation in this scenario we need to consider the concept of the marginal b... View the full answer