The below table shows the average utility (in utils) obtained from the consumption of goods A and B.Table 7.3

-According to the law of diminishing utility, _____.
A)the same tax rate should be applied to every dollar
B)the rich people should have a lower tax rate as compared to poor people
C)the rich people should have a higher tax rate as compared to poor people
D)the total burden on the society from a tax will be less if proportional taxation is used
E)the poorer people should not be taxed at all

Question

The below table shows the average utility (in utils) obtained from the consumption of goods A and B.Table 7.3
 
-According to the law of diminishing utility, _____.
A)the same tax rate should be applied to every dollar 
B)the rich people should have a lower tax rate as compared to poor people 
C)the rich people should have a higher tax rate as compared to poor people 
D)the total burden on the society from a tax will be less if proportional taxation is used 
E)the poorer people should not be taxed at all

Quizplus · Accepted Answer

The law of diminishing utility states that as we consume more of a good, the additional utility (satisfaction) we receive from consuming one more unit of the good decreases. Therefore, individuals with higher income will have a higher overall level of satisfaction (utility) from consumption and, as a result, will have a higher willingness to pay taxes. This justifies a higher tax rate for the rich people as compared to poor people. Thus, choice C is the best answer.

The Below Table Shows the Average Utility (In Utils) Obtained