Question

Choose the statement that is correct. A. A dollar collected from a rich person translates into a dollar received by a poor person. B. The larger the scale of​ redistribution, the smaller is the opportunity cost of administering it. C. The redistribution of income gives taxpayers a weaker incentive to work and benefit recipients a stronger incentive to work. D. The cost of collecting taxes and making welfare payments is a small part of the total cost of redistribution.   

Answer 1

Option B is correct

Note that when there is a redistribution of income from rich to poor, or from taxpayers to the beneficiaries , there is a strong incentive to taxpayers to work hard and earn more income to compensate for the tax. Those who receive benefits are less likely to search for work because they are already receiving the benefits without working. Opportunity cost of administering goes on reducing as the scale of distribution increases. This is true because when a large scale redistribution program is used, the welfare loss is minimised which is measured by the opportunity cost.