Suppose that there are only two people in an economy. Under the current income tax system, the marginal revenue of a 1% tax increase on Harry is $50 while the marginal revenue of a 1% tax increase on Sally is $30. The marginal utility of Harry is 30 utils while the marginal utility of Sally is 20 utils. Which of the following should be done to make the tax system optimal without affecting total government revenues?
· Harry should be taxed more and Sally should be taxed less.
· Sally should be taxed more and Harry should be taxed less.
· The tax system is currently optimal.
· More economic information is necessary to answer the question.
· The answer depends on whether or not Harry has met Sally.
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