The Distribution of Income (Try It Out Q's & Self-Check)

A source of income inequality is ________.

family structure

A likely outcome from taxing the rich at a high percentage in order to ________ income, would be discouraged entrepreneurship and work.

redistribute

Paddy has lots of cousins. With a family reunion in the near future, Paddy decides to collect income information for himself and all his cousins. He obtains the following data points: $52,000, $22,000, $92,000, $8,000, $118,000, $62,000, $38,000, $14,000, $132,000, $46,000, $26,000, $96,000, $54,000, $110,000, $80,000. The share of income received by the second-to-bottom quintile of this income distribution is ________.

11.6%

What happens with poverty and inequality if high-income and low-income workers have rising incomes, but the incomes increase less for workers who are high-income earners?

Both inequality and poverty will decrease.

What does a Lorenz curve graph?

Cumulative shares of income received by everyone up to a particular quintile.

Which of the following statements is the most accurate regarding government intervention to reduce economic inequality?

If society wishes a high level of economic output it must also accept a high degree of inequality. Conversely, if society wants a high level of equality it must accept a lower level of economic output because of reduced incentives for production.

Governmental public policies have the potential to create a series of programs to assist people to transform the ________ under which they live.

circumstances

What would probably occur if government policies to reduce poverty or to encourage economic equality, were taken to extremes?

It would reduce incentives to work and reduce economic output.

Which of the following statements is not accurate regarding distribution of income?

Poverty rates cannot change if inequality does not change.

Imagine an economy of 10 individuals. Their annual incomes are reported below. Imagine that $100 of Oprah's income is transferred to Anna. What is true? NameIncomeNameIncomeJohn$1000Bob$300Kitty$800Salman$700Walter$200Dora$600Steve$500Anna$100Samuel$800Oprah$900

The poorest 20% of the population's income share grows from about 5.0% to about 6.8%.

Which of the following is a potential source of income inequality?

Wage disparity

Economists ________ to study income distribution in an economy.

divide the total number of households into fifths, or quintiles

Potential causes of income inequality in a market economy include which of the following?

family structure, earnings disparity, increased demand for high-skilled jobs

The Lorenz curve presents an alternative way of showing inequality data. Which graphical description typically means a more unequal distribution of income?

farther down and away from the 45-degree line

When going over the arguments opposed to government intervention, one states that society must accept a ________ degree of inequality in exchange for if it wishes to have a ________ level of economic output.

high; higher

If 20% of the population earns 50% of the total income in a country, then there is ________.

inequality

Considering the Lorenz curve in the figure below, the 45 degree curve is ________ and ________ is/are the inequality data presented on a graph.

label a; labels b and c

A Lorenz curve represents the cumulative percentage of total income received along the ________ and the cumulative share of population along the ________.

vertical axis; horizontal axis