Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
Equal marginal sacrifice means that the marginal utility of income 
sacrificed by all the tax-payers should be the same. Thus, marginal 
sacrifice of A = marginal sacrifice of B, etc. 
Here, d stands for a unit change (i.e., marginal). 
It implies that the person with a higher income will be 
expected to bear the most burdens as the marginal utility of a 
higher income will be very low as compared to that of a low income. 
Thus, when the marginal sacrifice of each tax-payer (poor or rich) is 
equalized, the total or collective sacrifice of all tax-payers in the 
community as a whole will be the minimum than otherwise. 
Musgrave‟s Utility Model 
The exact meaning of these three concepts of equal sacrifice 
has been graphically expressed by Musgrave. Musgrave has 
( )
(
)
( )
(
)
.
U Y
U Y
T
A
U Y
U Y
T
B
etc
( )
(
)
( )
(
)
.
( )
( )
U Y
U Y
T
U Y
U Y
T
A
B
etc
U Y
U Y
(
)
(
)
.
(
)
(
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dU Y
T
dU Y
T
A
B
etc
d Y
T
d Y
T

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constructed an income-utility model based on the following 
assumptions: 
1. 
There are two individuals A and B, where A‘s income is OA, 
B‘s income is OB (OB > OA). 
2. The income utility unction: is an inverse function. 
Thus, marginal utility of income diminishes with a rise in 
income, while total income utility increases, but at a 
diminishing rate. 
3. There is a subsistence level of income exempted from tax. 
Utilities for SA and SB income levels of the two individuals 
are measured and accordingly MU and TU curves have 
been drawn. 
4. There are no disincentive effects of tax burden on the given 
income. 
5. 
The government‘s revenue requirement is fixed, as TB.