ECON 2105 - Exam 1

tax dodge

"hold stock until you die"

costs of redistribution (leaky bucket)

- administrative costs - higher taxes reduce the incentive to work - excessively risky behavior - benefit reductions, reducing the incentive to work for the poor - tax avoidance, evasion, and fraud for the well-to-do - lobbying

things to know about the tax system in regards to SNP and SI

- all safety net programs and social insurance are paid for by taxpayers - this system reduces inequality as we do not all pay the same amount in taxes - overall, the tax system tends to be progressive

costs and benefits of redistribution

- benefits: moves money to those who benefit more from it - costs: moving that money is costly

comparing measures of inequality

- permanent income may be the best measure

Is the U.S. poverty line an absolute or relative standard?

Both; Relative: set at a level that reflects the fact that the U.S. is a rich country Absolute: being compared to a standard set

diminishing marginal utility

Each additional dollar yields a smaller boost to your utility—that is, less marginal utility—than the previous dollar.

social insurance

Government-provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings. - liked to insure against risks such as: job loss, injury at work, large medical bills - I.e., social security, medicare, unemployment insurance

measures of inequality

Measures Outcomes: - Income inequality. - Wealth inequality. - Spending - permanent income Measures Opportunities: - Intergenerational mobility

To decide on your quantity for demand, follow the:

Rational Rule for Buyers

To decide on your quantity for supply, follow the:

Rational Rule for Sellers

social safety net

The cash assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution - to also ensure a min material standard - means-tested: eligibility is based on income and sometimes wealth - I.e., food stamps, Medicaid, welfare

equilibrium price

The price at which the market is in equilibrium

equilibrium quantity

The quantity demanded and supplied at equilibrium. In equilibrium, neither suppliers nor demanders have an incentive to change.

What do markets do?

They determine: - what gets produced - how much gets produced - who produces it.▪ who receives it. - at what price - Price orchestrates all this activity(price → rationing function)

regressive tax

a tax where those with less income tend to pay a higher share of their income on the tax - taxes on things you tend to buy tend to be ____

progressive tax

a tax where those with more income tend to pay a higher share of their income in taxes

marginal utility

an additional utility you get from one more dollar

poverty line

an income level below which a family is defined to be in poverty - is both an absolute and relative standard

permanent income

average lifetime income

Incidence of poverty

despite poverty spells being short, most poor people stay in poverty long-term

Demand curves slope ____

down, this is due to diminishing marginal benefit

Demand curve is also the...

marginal benefit curve

Supply curve is also the...

marginal cost curve

Objective for demand

maximize economic surplus (MB - WTP)

Objective for supply

maximize profits (R - C)

income

money received, especially on a regular basis (wages, interest income, etc.)

equilibrium

quantity supplied = quantity demanded

how does the government redistribute income?

safety nets, social insurance, and taxes

actual poverty is less than official poverty primarily because:

tax credits and non-cash benefits are not included when calculating incomes

income taxes

taxes collected on all income, regardless of its source

intergenerational mobility

the extent to which the economic status of children is independent of the economic status of their parents

Diminishing marginal benefits means that the well-being curve flattens as income increases. Therefore, when income is redistributed,

the marginal increase in well-being for those with low incomes > the marginal decrease in well-being for those with high incomes

poverty rate

the percentage of people whose family income is below the poverty line

Utilitarianism

the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society

effective marginal tax rate

the sum of higher taxes and reduced benefits accruing from each dollar you earn

wealth

the value of assets owned (savings, cars, houses, etc.)

relative poverty

type of poverty that judges relative to the material living standards of your contemporary society - this measure says that more people are in poverty

absolute poverty

type of poverty that judges the adequacy of resources relative to an absolute standard of living

Supply curves slope ____

up, this is due to increasing marginal cost

social insurance programs do NOT:

use a means test to qualify people for benefits

utility

your level of well-being, satisfaction, joy