Economics test 3

HH thresholds to move into 5th quintile

$102,000

HH thresholds to move into 2nd quintile

$20,000

HH thresholds to move into 3rd quintile

$38,000

Median household income in the US is about

$50,000

HH thresholds to move into 4th quintile

$62,000

Some grumpy inventors --- Many inventors over the years have discovered that there inventions brought less of a return and theymight have reasonably expected.

"An invention can be so valuable as to be worthless to the inventor"Eli Whitney.

Poverty line

- the specific amount of income needed for a basic standard of living.

Why study income and wealth inequality?

1. Curiosity as to why people are rich and people are poor and how do we become rich. 2. It is topical (popular topic) - it will be discussed in political debates 3. It has a broad economic and social consequences

If A society decides to reduce the level of income inequality, it has 3 mean sets of tools to used:

1. Redistribution - taking income from those with higher incomes and providing income to those with lower income. 3 main ways

A number of laws have been posted to create greater balance in negotiations between workers and employers. For example there are laws:

1. Setting minimum hourly wages 2. Limiting the hours that employers can require (at least before they pay overtime)

Aid to Families with Dependent Children (AFDC) - old - which provided cash payments to mothers with children school were below the apartment in line. This program was often just called welfare.

1. States would set the level of welfare benefits that they would pay to the poor, and the federal government guaranteed to chip in some of the money as well 2. No limits to benefits and no work requirements

Objections to the Difference Principal

1. What about incentives? 2. What about effort? 3. What about self-ownership?

Concluding thoughts about economics of unions 1. The economic analysis of unions does not end up with a blanket conclusions that they are automatically good or bad.

2. If unions push wages, and employers will seek out ways of hiring fewer union workers.

2. In a fast-moving high technology industry patents may be almost irrelevant because technology becomes obsolete fast.

3. Not every idea can be protected with a patent or a copyright e.g. a new way of organizing a factory, or a new way of training employees, or a new combination of production features may not be an "invention" in the sense that patent laws uses the term.

The benefit of a cleaner environment can be divided into four areas: 1. People may stay healthier and live longer 2. Certain industries that rely on clean air and clean water may benefit like farming or fishing or tourism

3. Property values may be higher in cost of cleaning and corrosion lowered 4. People may simply enjoy a cleaner environment, in a way that does not need to involve a market transaction

Other safety net programs. The safety net includes a number of other programs: 1. Government subsidiezed school lunches and breakfasts for children from low income families 2. The special supplemental food program for women, infants, and children (WIC)

3. The low income home energy assistance program which provides help with home heating bills 4. Housing assistance which help pay the rent 5. Supplemental security income which provides cash support for the elderly poor

When regulations specifies that one particular pollution control technology must be used, firms have no reason to rethink their production methods in fundamental ways that might reduce pollution by even greater amounts at a lower cost

3. They often have politically motivated loopholes and exceptions because they are set by real world legislators in bureaucrats.

Government policies to reduce income inequality

4 reasons why no society should expect or desire complete equality of income at a given point in time

3. People can be lucky or unlucky. Some people will take a job with a company that grows by leaps and bounds, or will be born with traits that help make it possible for them to be a professional athlete or model, or will win the lottery.

4. Any economic system with incentives for acquiring skills, working hard, and invent new goods and services will result in some inequality.

3. If unions block new technologies, go on strike repeatedly, or negotiate so aggressively for higher wages that they injure the long-term health of firms, then they maybe economically harmful.

4. If unions help workers to feel more secure, be better train and more flexible, and communicate better with management, then unions may be economically beneficial

3. Prohibiting children labor 4. Regulating health and safety conditions in workplaces 5. Preventing discrimination on the basis of race, ethnicity, gender, and age. 6. Requiring that employers provide family leave

7. Requiring that employers give advanced notice of layoffs 8. Requiring that workers have unemployment insurance 9. Requiring to limit the number of immigrant workers from other countries

The comments can be regarded as a public good, where it is difficult to exclude anyone from use (non-excludability) and where many parties can use to resource simultaneously (non-rivalrous)

A common resource is typically not owned by anyonetragedy of the commons - depletion of public good or common resource.

How do wages of a fully employed male in 1970 compared to wages of a fully employed male in 2003? (Which were higher?; by how much?)

A fully employed male today make about $800 less then his father did.

GINI = A / (A+B)

Can be between 1 < GINI < 0 GINI = 0 = perfect equality GINI = 1 = one person has all "A" represents the level of inequality compared to total equality

Government spending on research and development If the private sector does not have sufficient incentive to carry out research and development, one possible response is for the government to fund such work directly.

Government provide direct financial support for research and development, which is done at colleges and universities, nonprofit research entities, and sometimes private firms, as well at government-run laboratories.

New technology changes how people live and work. Most inventions are motivated, at least in part, by a desire to learn financial reward.

However, an inventor typically receives only a fraction of the overall social benefit that an invention provides - with much of its benefit going to users of the invention or to other firms that can copy the idea behind the invention.

3. Better-defined "property right" - the legal right of ownership on which others are not allowed to infringe without paying compensation.

If neither party has property right than both sides may refuse responsibility, and nothing will be done with regards to the externality.

If society wishes a high level economic output, it must also accept a high degree of inequality

If society wants a high level of equality, it must accept a low level of economic output because of reduced incentives of production.

How does the median household income in 2015 compare to the median household income in 1995?

It is about the same

5. Affirmative action - Active efforts to improve the job opportunities or outcomes of minority groups or women.

It's more aggressive and controversial form, affirmative action might require businesses to set specific numerical targets or quotas for the percentage of minorities and women that the firm will hire and promote.

Examples of positive externalities of new technology: vaccines, education, modernization of homes in the neighborhood.

Just like pollution exist because firms do not take negative externalities light pollution into account, one can argue that too little antipollution equipment is installed because firms to not take into account the positive externalities of doing so.

The graph describing the income distribution is called __________

Lorenz curve

However, for the cases in which millions of users are emitting small amounts of pollution and have no strong interest in trading, pollution charges will typically offer a better choice.

Market oriented environmental policies can also be combined. And like all forms of government regulation, need to be applied with care, judgments, and even a dash of creativity.

things that happened in one generation gap:

Median income goes up for families (married couples)

Pollution as a negative externality

People suffer from pollution even when they where neither a buyer nor a producer of the product that led to the pollution being produced.

With such programs, every time a person earns $100, the person also looses $100 in government support (poverty trap).

Poverty trap - when antipoverty programs are set up so that government benefits decline substantially as people earn more income - and as a result, working provides little financial gain.

____ include both the private costs incurred by firms and also costs incurred by third parties outside the production process.

Social costs

over there last several decades has helped many workers to become more productive, the benefit have

been especially greater for many high-skilled workers like top business managers, lawyers, consultants, designer professionals, and others.

Medicare - a federal-state joint program enacted in 1965 that provides medical insurance for

certain (not all) low income people, including the near poor as well as those below the poverty line, and focusing on low income families with children, low income elders, and the disabled.

Genetically mutated marine life caused by "endocrine disruptors" is being found in the Potomac. "Endocrine disruptors" are

chemicals from consumer products and pharmaceuticals

Investigating the female/male earnings gap Women are likely to bear a disproportionately large share of household responsibility. A mother of young

children is more likely to drop of the labor force for several years or work on a reduced schedule then is the father. As a result, women in their 30s and 40s are likely, on average, to have less job experience than men.

Certain programs might increase both output and economic equality. For example the policy of providing free public education has an element of distribution, since the value of the public schooling received by

children of low income families is clearly higher than what low income families pay in taxes. But a well educated population is also an enormously powerful factor in providing the skilled workers for tomorrow and helping the economy to grow and expand

3. A tax on inheritance If wealthy parents can give large gifts and inheritance to their children, then economic inequality may persist across generations. How much wealth should rich people be able to pass on to their

children? On the other hand, it seems self-evident that people who have worked hard all their lives and save a substantial nest egg should be able to give their money and possessions to their children and grandchildren if they wish.

Inequality - when one group receives a higher share of the total income or wealth than others. Economic inequality

compares the share of the total income or wealth in society that is received by different groups; for example, comparing to share income received by the top 10% to the share of income received by the bottom 10%

3. A reduced desire for unions because of the workplace protection lost now in place. Modern worker seek to address their problems by calling upon their elected representatives to pass laws about working

conditions e.g. over time, parental leave, regulation of pensions, and other issues like those 4. A U.S. legal environment that makes it relatively more difficult for unions to organize workers and expand their membership

Richard Wilkinson TED talk ____________.

discusses the social problems associated with inequality

Near-poor

those who have income just above the poverty line.

How to raise the rate of return to investors Governments have a variety of policy tools for increasing the rate of return for new technology and encouraging its development:

1. Directing government funding for R&D 2. Tax incentives for R&D 3. Protection of intellectual property 4. Letting companies work jointly on R&D 5. Helping to finance the spread of available technology

intellectual property rights provide a method of increasing the rate of return for inventors, but there are a few number of reasons to doubt whether patents provide completely appropriate an sufficient incentive for innovation:

1. Economic studies that show that inventors receive only 1/3 to 1/2 of the total economic value of their inventions even when patents are in place.

The principals chosen behind the vail of ignorance:

1. Equal basic liberties 2. The difference principal

Employment discrimination 1. Discrimination involves acting on the belief that members of a certain group have lesser abilities solely because of a factor like their race, gender, religion.

2. Discrimination occurs in the labor market when workers with the same economic characteristics like education, experience, and skill are paid different amounts because of race, gender, religion, age, or disability status.

The changing composition of American households 1. A 1970s, 41% of married women were in the labor force, but into 2010, 61% of married women wear in the labor force

2. More households have two people earning high income. Before a doctor would marry a secretary, now a doctor will marry another doctor. 3. More single-parent families

Lauren's Curve - A graph that shows to share a population on the horizontal axis and the cumulative percentage of total income received on the vertical axis 1. The straight line sloping up at 45° angle, the points along this line shows what perfect equality of the income distribution looks like.

2. The curved line reflects the actual US data on inequality. 3. A more unequal distribution of income will loop further down and away from the 45° line, while a more equal distribution of income will cuddle closer to the 45º line.

The decline in US union membership 1. The shift from manufacturing (decreased) to service industry (increased)

2. The force of globalization and increased competition from foreign producers

Public policies to reduce discrimination A range of public policies can be used to reduce earnings gaps between men and women or between white and other racial/ethnic groups: 1. It is illegal 2. Requiring equal pay for equal work

3. Attaining more equal educational outcome (Between whites and other race/ethnicities) 4. Providing greater support for mothers in the workforce (between men and women)

5. Patents may sometimes cover too much or be granted to easily. In the 1970s Xerox was granted a patent every time it improved the photocopier.

6. The 20 year time period for a patent is somewhat arbitrary. Ideally a patent should cover a long enough period of time for the inventor to earn a hearty returned, but not so long that it allows the inventor to charge a high monopoly price permanently.

Non-rivalrous

A good where, when one person uses the good, others can also use it - it does not prevent others from using it.

Negative externality

A situation where a third-party, outside the transaction, suffers from a market transaction by others.

Positive externality

A situation where it third-party, outside the transaction, benefits from a market transaction by others.

Public good - A good that is non-excludable and non-rivalrous, and thus is difficult for a market producer to sell to individual customers.

A situation where positive externalities are so extensive that the private firm producing a certain product could not expect to receive any of the social benefits at all.

It benefits and cost of U.S. environmental laws

A strong case can be made that, taken as a whole, the benefits of the US environmental regulation have outweigh the cost. However in certain individual cases, the cost may have outweigh the benefit

What is the medal household net worth (or net wealth) for 65-69 year olds in the U.S.

About 200,000 this can change

The GINI coefficient

Advantage of being more comprehensive because it measure the entire distribution but it has a disadvantage of being more complicated to calculate.

Drawing the poverty line The concept of a poverty line raises many tricky questions. In a bass country like the United States, should the same national poverty line applied to all states?

After all, the median household income varies considerably across the states, and prices of some basic goods like housing are quite different between the states.

What is "by far the largest source of pollution to all water ways in the country", in the video?

Agriculture

A shift in the distribution of wages The earnings received by high skilled-labor relative to low-skilled labor have increased.

An explanation for the factor that causes it demand of high skilled labor to rise is that while the explosion of new information and communications technologies

Rival theories of justice

Aristocracy Libertarian Meritocracy

4. Patents and copyrights offer an incentive for research and development because they offer a temporary monopoly, which in turn allows charging a higher price for a reduced level of output.

But if an alternative policy could encourage both innovation and competition, instead of innovation and monopoly, consume a would benefit from the lower price in crater quantity sold.

Without a patent firms would have to face entry and competition for any successful product, and thus could earn no more and then a normal rate of profit.

But with a patent, a firm is able to earn a monopoly profit on its product - which offers an incentive for research and development to take place.

International environmental issues

Certain global environmental issues, like global warming and biodiversity (the full spectrum of animal and plant genetic material), spill over national borders and will need to be addressed with some form of international agreement.

Social costs

Costs that include both private cost incurred by firms and also costs incurred by third-party outside the production process, like costs of pollution on a populations health and other values.

income for male actually went down. A fully employed male today make about $800 less then his father did. The income increase was due to the entry of female into the work force. Saving when down. Today the average american family saves $0

Debt when up - Where was the difference in the money spent? HH spent less on: food, clothing, appliances, cars HH spent more on: mortgage, health insurance, cars (they have more cars now), child care, taxes the downs are all small and flexible purchases The family of the early 2000s has to have 2 incomes afford a living

Causes of growing income inequality

Economists have focus their explanations for the increasing inequality of income on two factors: 1. Changing shape of American households 2. Greater inequality of wages

Reasons to why inequality occurs

Education Experience & training Effort Ability Connections Preferences Tolerance e.g. risk Social skills Luck Gender Race

Public goods, are typically provided by the government but not always, in some cases markets can provide public goods e.g. radio

Fireworks are typically provided by private parties but they are non-rival and non-excludable to the populations. National defense is a public good and provided by the government .

For a negative externality, a private costs of an action are less than the cost impose on society as a whole, and so private actors have an incentive to carry out activities, like in meeting pollution, at a level that is greater than society as a whole desires.

For a positive externality, the private benefits of an action are less then the social benefits, and so private actors lack an incentive to carry out activities, like innovations that lead to a new technologies, to the extent that society as a whole desires.

Earned Income Credit (EIC) A method of assisting the working poor through the tax system.

For every $1 in earned income, a family with children receives a tax refund. The amount of tax break increases with the amount of income earned up to a point.

4. Which did Americans (responding to a 2002 survey) believe more: that the landing on the moon was faked or one could make it into the middle class without a college degree?

More believed that the landing on the moon was faked

3. In which type of household do more children live in, those going through divorce or those going through bankruptcy?

More children live in HH that file for bankruptcy then HH that file fore divorce.

___ describes a situation where a third party, outside the transaction, suffers from a market transaction by others.

Negative externality

he Environmental Protection Agency (EPA) was signed into law by President

Nixon

2. People's preferences and desires differ. Some are willing to work longer hours to have incomes for large houses, fast cars and computers, luxury vacations, and the ability to support children and grandchildren.

Others will work fewer hours and instead use their time for reading books, listening to music, and cooking meals to eat with their families.

The goal of reducing pollution to zero has a strong emotional appeal but it doesn't make much sense. People exhale carbon dioxide and create bodily waste. The production of food we eat, the clothes we wear, and the car as we drive all cost pollution.

Rather than arguing over whether the ultimate goal is zero pollution or a reasonable level of pollution, the immediate focus should be to tackle the environmental issue where the marginal benefits are greatest and the marginal cost at least.

The tragedy refers to, each man is locked into a system that compels him to increase his heard without limit in a world that is limited. Therefore, freedom in the commons brings ruin to all.

Ruin is the destination towards which all man rush, each pursuing his own best interest in a society that believes in the freedom of the commons.

The poverty line is based on cash income, which means it does not take into account government programs that provide assistance so the poor in a non-cash form, but Medicare and Medicaid or food stamps that can be exchanged for food and grocery stores.

Should the poverty line be adjusted to take the value of such programs into account? Government statistics at the US Census Bureau have ongoing research programs to address questions like these.

A poverty trap is when people are provided with food, shelter, health care, income, and other necessities but such assistance may reduce their incentive to work.

Some programs are set up to where: The government provides assistance to the poor, but as the poor earned income to support themselves, the government reduces the level of assistance it provides.

The tragedy of the commons. It refers to this scenario in which the utility-maximizing behavior of individuals ruins the commons for all

The commons was a piece of pasture land that is open to anyone who wishes to graze cattle up on it.

Rawls arguments in favor of his difference principals of justice:

The distribution of wealth, income, and opportunities should not be based on factors for witch people can clam not credit, it should not be based on factor that are arbitrary from a moral point of view.

Immigration The recent level of US immigration is at a historically high level if measured in absolute numbers, but appears somewhat lower if measured as a share of population.

The overall gains to the US economy from immigration are real but relatively small. However, immigration also causes effects like slightly lower wages for low skilled workers and budget problems for certain states and local governments.

Who was more like to be in the workforce: a woman in 1970 with a 16 year old child or a woman in 2003 with a 6 month old child?

The woman in 2003 is more likely

Earning gaps between race and gender In the United States, female workers on average earned less then male workers, and black workers on average earn less than white workers.

There is controversy over the extent to which these earning gaps can be explained by discrimination or by differences in factors like education and job experience.

Command-and-control regulations - Laws that specify allowable quantities of pollution and may also detail which pollution control technologies must be used.

They set specific limitations of pollution emissions and/or specific pollution control technologies that must be used. Although such regulations have helped to protect the environment, they have three shortcomings:

Income distribution by quintiles Quintiles - dividing a group into fifths, a method often used to look at distribution of income.

This calculation allows measuring inequality by comparing what share of total income is earned by which quintile.

2. They offer limited flexibility in where and how pollution will be reduced. It usually requires the same standard for all potential polluters and often the same pollution control technologies as well.

This draws no distinction between firms that would find it easy and inexpensive to me the pollution standards and firms where it might be difficult and costly to meet the standards.

1. Pollution charges - a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax.

This policy gives a profit-maximizing firm an incentive to figure out ways to reduce its emissions - as long as the marginal cost of reducing the emissions is less than the tax

Free rider

Those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided.

Externality

When a market exchange affect the third-party who is outside or external to the exchange; sometimes called a spillover.

Spillover

When a market exchange affects a third-party who is outside or external to the exchange more formally called externality.

Cooperative research and development it allows companies to form jointly found it R&D institutions.

When companies work together, they share the expenses of R&D and share any discoveries that result.

Non-excludable

When it is costly or impossible to exclude someone from using the good, and thus hard to charge for it.

Food stamps

a federally funded program, started in 1964, in which people receive coupons each month that they can use in grocery stores to buy food.

Temporary Assistance for Needy Family (TANF) 1. The government gives a fixed amount of money to each state 2. Federal government imposed two key requirements:

a. If states are to keep receiving the TANF grant, they must impose work requirements so that most of those receiving TANF benefits are working or attending school. b. No one can receive TANF benefits with federal money for more than a total of five years over her lifetime

Intellectual property rights include patents, which give the inventor of the exclusive legal right to make, use, or sell the invention for a limited time

and copyright laws which gives authors an exclusive legal right over works of literature, music, movies, and pictures.

Facts about union membership and pay 1. Union workers in the United States are paid more on average than other workers with comparable education

and experience. Thus, either union workers must be more productive to match their higher pay, or the higher pay will lead employers to find ways of hiring fewer union workers then they otherwise would.

Rawls believes that the best principals of justice

are best derived from a hypothetical contract and that the hypothetical contract be carried out in an original position of equality behind the veil of ignorance.

The incentive of developing new technology -- The pressure of market competition can provide producers with incentives to develop and distribute new technologies

because a firm can earn higher profits by finding a way to produce existing products in cheaper ways or to create products with desirable characteristics.

Trade-off between economic output and environmental protection Based on their different income levels and political preferences, countries are likely to make different choices about allocative efficiency - that is, the choice

between economic output and environmental protection a long the production possibilities frontier. However, all countries should preferred to make a choice that shows productive efficiency - that is, the choice is somewhere on the production possibility frontier rather then inside it.

2. Trying to assure that a ladder for opportunity is widely available. Economic inequality is perhaps most troubling when it is not the result of effort or talent,

but instead is determined by the circumstances under which a child grows up.

We are entitled to the benefits that the rules of the game promises for our talents

but it is a mistake, to supposes that we deserve,in the first place, a society that values the qualities we have in abundance.

2. Which American workers belong to unions in 2012 a. 12% of males; 10.5% of females b. 11.1% of white workers; 13.4% of black workers; 9.8% of Hispanic workers

c. 12.5% of full-time workers and 6.0% of part-time workers d. 4.2% of workers ages 16 to 24; 9.5% of workers ages 25 to 34; 12.5% of workers age 35 to 44; 14% of workers ages 45 to 55

a. Federal income taxes are designed so that the rich pay considerably more in income tax than poor. b. Welfare program TANF, the earning income credit, food stamps, Medicaid

c. The fact that some degree of free distribution occurs now through federal income tax and government anti-poverty programs does not settle the questions of how much redistribution is appropriate in whether more redistribution should occur.

Competitive markets and discrimination While competitive markets (free markets) can't allow some employers to practice discrimination, they can also provide profit-seeking firms with incentives not to

discriminate through the threat of a loss of sales or a loss of productive workers. Discriminatory impulses can emerge at a number of levels: 1. Among workers 2. Among managers 3. Among customers

Libertarian - careers, should be open to the talented, they should have equal opportunity regardless of birth, however, if you let everyone enter a race, but different people have different starting points

e.g. being born in a family with wealth, then the race is still not fair. Libertarianism allows the race to be improperly influence by factors that are arbitrary form a moral point of view.

Meritocracy - this brings everyone to the same starting point before the race begins. But even this is not enough to address the moral arbitrariness of the natural loitering,

e.g. the better runners will win. Rawls on meritocracy, ..."but it still permits the distribution of wealth and income to be determined by the natural distribution of abilities and talents".

Economic production can cause environmental damage. This trade-off arises for all countries whether high-income or low-income, and whether their

economies are market-oriented or command-oriented and every country will need to strike some balance between economic output and environmental quality.

Traditionally, policies environmental protection have focus on setting limits of how much of each pollutant could be emitted. While this approach has had some success

economists have suggested a range of more flexible and market-oriented pollution-control policies that offer mechanisms for greater reduction of pollution at lower cost.

estate tax

eight tax imposed on the value of an inheritance

Distributive justice has nothing to do with moral desert. " A just scheme answers to what men are entitled to; it satisfies their legitimate expectations as founded upon social institutions. But what they are

entitled to is not proportional to or dependent upon their intrinsic worth. The principles of justice that regulate the basic structure... do not mention moral desert and there is no tendency for distributive shares to correspond to it" Rawls.

Market failure - A situation in which the market on its own fails to allocate resources efficiently in a way that balances social cost and benefit;

externalities are one example of market failure, when the externality pollution exists, The markets no longer consider all social costs, but only some of them.

Poverty

falling below a certain level of income needed for a basic standard of living.

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a

free rider

Equal basic liberties

fundamental rights to freedom of speech, freedom of assembly, liberty, and the like. We would not trade these right for anything there fore each person will receive equal amounts of basic liberties

3. American union membership has been falling for decades. Some possible reasons include the shift of jobs to service industries, greater competition from

globalization, the passage of work-friendly legislation, and the US laws that are less favorable to organizing unions.

The 'poverty trap' describes

how government programs for the poor can, under certain conditions, provide little work incentive

The bite of poverty traps can be reduced by phasing out government benefits more slowly, as well as by

imposting requirements for work as a condition of receiving benefits and time limit of benefits.

marginal benefit and marginal cost - as the extent of environment regulation increases, additional expenditures on environmental protection will probably

increase marginal costs and decrease marginal benefit. This pattern suggest that the flexibility and cost savings of market oriented environmental policies will become more important

Income

is a flow over a time period

Wealth

is a stock how much one has now

Inequality _______ as the GINI ratio increases.

is higher

The most important event in the 2nd halve of the 21 century

is that millions of mothers enter the work force. Households went for one income HH to two income HH

How much higher is the median annual earning for full-time year-round worker age 25-34 years old in 2014 compared to 2000

it is about the same or a bit lower

But any poverty line will be somewhat arbitrary, and it is useful to have a poverty line which basic definition does not change much overtime. If Congress voted every few years to redefine completely what poverty means, then

it would be difficult to compare poverty rates over time. After all, would a lower poverty rates mean that the definition had been changed or that people were actually better off?

However, if there is a well defined legal responsibility, then the party with that responsibility will seek out and pay for the

least costly method of reducing the externality. This approach is often used with regards to endangered species.

Aristocracy

life is determined by the accident of birth, nothing can change that, this is arbitrary from a moral point of view. We can not claim credit for being born a royal.

Measuring income inequality Economic inequality involves comparing those with high income, middle income, and low income - not just

looking at those below or near the poverty line. In turn, measuring income inequality meats dividing up the population into various groups and then comparing the groups.

emission overtime e.g. 10 units of pollution one year but only 9 units the next year. Environmentalists prefer

marketable permits over pollution charges because the permits impose specific limits on the quantity of pollution.

The Utilitarian approach to income inequality involves redistribution, with the goal of

maximizing social well being

The federal government has try to focus it's direct R&D spending on areas where private firms are not as active such as basic research, research on fundamental scientific breakthroughs that

may offer commercial applications only in the distant future, and applied research, research focused on a particular products that promises and economic payoff in the short or medium term.

Markets often have a difficult time producing public goods because free riders will attempt to use the public good without making a contribution to pay for it. The free rider problem can be overcome through

measures to assure that users of public goods pay for it. Such measures include government action, social pressures, and specific situations where markets have discovered a way to collect payment

2. Marketable permits - A permit that allows a firm to emit a certain amount of pollution, where firms with

more permits then pollution can sell the remaining permits to other firms. These permits are designed to shrink the total cost of

Mobility

movement up or down the income distribution. if there is no mobility the incentives don't matter. and mobility can be the incentive

Economic mobility' refers to

movements up or down the income distribution

Safety net

nickname for the group of government programs that provides assistance to the poor and the near-poor

A public good is a good that is ____________________ , and thus is difficult for market producers to sell to individual consumers

nonexcludable and nonrivalrous

1. They provide no incentives to go beyond the limits they set,

once the command and control regulation has been specified, zero incentive exists to do better

A positive externalities of new technology New technology often has positive externalities; that is, there are often spillovers of the invention of new technologies that benefit firms other then the inventor. The social benefit of an invention,

once the spillovers are taken into account, typically exceeds the private benefit to the inventor. If the inventor could receive a greater share of the broader social benefit for their behavior, they would have a greater incentive to seek out new inventions

Why is the median used instead of the average?

outliers

Is inequality a problem?

perfect equality and total inequality are a problem. There is an optimal level of inequality that causes and incentive

The trade-off between incentives and income equality 1. Government policies to reduce poverty or to encourage economic equality, if carried to extremes, can injure incentives of economic output. For example

poverty traps defines a situation where guaranteeing a certain level of income can eliminate or reduce the incentive to work. And extremely high degree of redistribution, with high taxes on the rich, would be likely to discourage work and entrepreneurship

Libertarian

promote mobility (education and anti-discrimination)

Other 'solutions' to income inequality , in particular, those aimed at the poverty end, discussed in the text, include the Earned Income Tax Credit (EITC). This program

provides a tax refund of 40 cents for every dollar earned, over a range of incomes

Inventors commonly receive only a portion of the total benefit of their invention. A variety of studies done by economists have found that the original inventor

receives 1/3 to 1/2 of the total economic benefit from inventions, while other businesses and new users receive the rest of benefit.

Rawls' argument relies on

recognition that we each bring our own 'position' (prejudice) to questions about the fairness of income inequality, making agreement difficult

Tax breaks for research and development A complementary approach to supporting R&D that does not involve the governments close scrutiny of particular R&D projects is to give firms a

reduction in there taxis depending on how much research and development they do. Tax breaks to encourage R&D spending reduces the tax that would otherwise had been paid by corporations

The Veil of Ignorance

refers to the state of ignorance (ignorance of abilities, talents and type of society) in which people of a hypothetical society can choose their principals of justice.

Investigating the black/white earnings gap Is gap has closed a lot in recent years; however, the

remaining gap seems related both to continuing differences in educational levels and to the presence of discrimination.

Higher wages of union workers If a union is introduced into a market with no prior union, the union will negotiate a union wage at a point higher then the equilibrium (acting like a monopoly in

selling the labor to the firm) by threatening to strike. As a result, at the union wage, the firm will hire less labor than they would have hired at the equilibrium point. Moreover, an excess supply of workers will wish to take union jobs, but the firms will not be hiring for such jobs.

Utilitarian

take money from the rich and give to the poor. The marginal utility form an additional $1000 to Bill Gates' less them the marginal utility form and additional $1000 to a poor person. Bill Gates will not miss it but a poor person can really uses it.

Applying market oriented environmental tools Market oriented and environmental policies are a tool kit, and specific tools will work better in some situations

than others. For example, marketable permits work best when there is a few dozen for a few hundred parties who are highly interested in trading.

A balance act Because new technologies bring positive externalities, there is a case of some sort of government action to support

the development of new technologies. However, public policy with regards to technology must often strike a balance. For example:

Utilitarianism

the greatest good for the greatest numbers. Would not work because we would all want to be treated with a certain level of respect and not be oppressed

Supporting Rawls' principle of justice is ___________.

the observation that the fate of birth (ie, one's family) plays an unfair role in determining one's place in the income distribution as an adult

However, if new inventions can easily be copied by others without having to pay the research and development cost themselves,

then the original inventor may not be able to earn a higher-than-usual rate of return for the R&D, in which case innovators would have a reduce incentive to invest in new technologies.

The difference principal

there will be equal opportunity for everyone to climb the economic and/or social ladder and that any social or economic inequalities that are allowed must be arranged so that they improve the access to Primary Goods for the Least Advantaged.

Market oriented environmental policies - Market oriented environmental tools create incentives for firms to take the social cost of pollution into account, but then allows firms some flexibility in reactant to

these incentives. These policies use taxes, markets, and property rights so that those who impose negative externalities must face the social cost. Three main categories:

1. Patents provide an incentive for inventors, but they should be limited to genuinely new inventions and not extend it forever because they also create temporary monopolies. Also they may be granted to slowly in some cases into easily in others and even at their best,

they allow the inventor to receive only a fraction of the social benefit of the invention. 2. Government spending on R&D must be balanced against other government spending priorities.

If those parties imposing a negative externality on others had to take the broader social cost of their behavior into account,

they would have an incentive to reduce the production of whatever is causing the negative externality. Although the prices of goods would also be higher

1. Most workers receive relatively low earnings in their first few jobs, higher earnings as they reach a mid age, and then lower earnings after retirement.

thus a society with people of varying ages will have a certain amount of income inequality

Employers have an advantage in bargaining with employees because it is usually easier for an employer

to replace or do without a single employee then it is for an employee to find another job or being unemployed.

When there is an negative externality the market price is _______ and the market quantity is ____ relative to the socially optimal levels

too low, too high

The source of water for the Washington DC area is the

water from the local Potomac River

Labor markets will determine wages according to demand and supply,

which can lead to very low incomes for some people and very high incomes for others.

Original Position - the position in which a group of people gather to plan their own future society but

without the details of what will basically become a Social contract. In the original position the future citizens do not yet know what part they will play in their upcoming society. They must design their society behind what Rawls calls the Veil Of Ignorance.

Labor unions: an organization of workers that negotiates with employers as a group over wages and working conditions. A labor union seeks to change the balance of negotiations between employers and

workers that forcing employers to deal with workers collectively, rather then us individuals. Collective bargaining - negotiations between unions and it firm or firms