Question

Without any incentive distortion, Yakov would retain $72,000 and Ana would end up with $43,000. However, let us assume that since Yakov will not receive all the income he earns, he decides to work less and earn an income of only $75,000, of which 20%×$75,000=$15,000 will be owed in taxes. With the redistribution plan, Yakov will take home an income of. The $15,000 that Yakov pays in taxes will be transferred by the government to Ana. Let us assume that since Ana now receives payment from the government, she will not work as many hours and will earn an income from work of only $23,000 instead of her initial $25,000. With the redistribution plan, Ana's total income (including the government payment received) is now. Without a redistribution plan, total income in this society is. After the redistribution plan is implemented, total income in this society is. Therefore, the redistribution plan total income in this society.

Answer 1

The redistribution plan in this society affects the total income of Yakov and Ana. Yakov's decision to work less and pay taxes results in a transfer of income to Ana. Hence, the redistribution plan impacts the total income in this society.

Step-by-step explanation:

The redistribution plan in this society affects the total income of Yakov and Ana. Without the redistribution plan, Yakov would retain $72,000 and Ana would end up with $43,000. However, with the redistribution plan, Yakov decides to work less and earns an income of $75,000, of which $15,000 will be owed in taxes. The $15,000 in taxes will be transferred to Ana by the government, and as a result, Ana's total income (including the government payment received) is now $23,000. Therefore, the redistribution plan has an impact on the total income in this society.