PROBLEM #3 [8 points]: Suppose that you are responsible for proposing an income redistribution program to the Ontario Minister of Finance. You have compiled the following analysis on the current division of wealth among the two major stakeholder groups in question (rich and poor). Your analysis depicts the current Pareto optimal allocation (Ei) resulting from the initial endowments (w1). Poor XRich- - ORich CC XPoor Poor `Price Ratio YRich a) If the social goal is to redistribute income between the rich and poor such that prices will lead to an allocation at Ex then suggest a taxation method to achieve this goal without any loss in efficiency. Fill in the circle for your choice. [1 point] Progressive tax that taxes the rich relatively more than the poor (not moving the endowment point). O Regressive tax that taxes the poor relatively more than the rich (not moving the endowment point). O Lump sum tax on the rich that is given to the poor (moving the endowment point). o b) Complete your diagram above to include your taxation method that will achieve the allocation at Ez. [2 points] c) What are the conditions that must be present for your taxation method to be effective in avoiding a loss of efficiency? [1 point] d) Discuss the effects of your income redistribution scheme on efficiency and equity. [4 points]