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The utilitarian case for redistributing income is based on the assumption ofdiminishing marginal utility.An extra dollar of income to a poor person provides that person with more additional utility than does an extra dollar to a rich person.As a person's income rises, the extra satisfaction from an additional dollar of income declines.However, utilitarians do not believe that all incomes should be equal.Principle #3: People respond to incentives.If all incomes were to be equalized, this would reduce the incentive to work hard. If individuals do not work as hard, total income falls, which lowers total utility.Thus, in a utilitarian's opinion, the government must balance the gains from greater equality against the losses caused by the distorted incentives.
Policies to Reduce PovertyMinimum-Wage LawsFor workers with low levels of skill and experience, a high minimum wage forces the wage above equilibrium.This leads to higher unemployment among those groups of workers affected by the minimum wage.Although those workers who remain employed benefit from a higher wage, those whomight have been employed at a lower wage are worse off.The magnitude of the effect depends on the elasticity of demand for labor.