Micro Ch. 20 Review

Which of the following statements is characteristic of utilitarianism? a. An extra dollar of income provides higher marginal utility to a poor person than to a rich person. b. Social policies should be created behind a "veil of ignorance." c. Society should strive to maximize the utility of its wealthiest member. d. Equality of opportunity is more important than equality of incomes.

a. An extra dollar of income provides higher marginal utility to a poor person than to a rich person.

The study by economists Cox and Alm found a. inequality in consumption is much smaller than inequality in annual income. b. inequality in consumption is slightly smaller than inequality in annual income. c. inequality in consumption is slightly larger than inequality in annual income. d. inequality in consumption is much larger than inequality in annual income.

a. inequality in consumption is much smaller than inequality in annual income.

Libertarians believe that a. it is more important to evaluate the process by which economic outcomes are produced than the outcomes themselves. b. government should attempt to redistribute income from the rich to the poor when the gap between rich and poor is more than 20%. c. equality of income is more important than equality of opportunity. d. it is more important to evaluate economic outcomes first and then the process that produced them.

a. it is more important to evaluate the process by which economic outcomes are produced than the outcomes themselves.

Assume that the government proposes a negative income tax that calculates the taxes owed as follows: Taxes Owed = (1/3 Income) - 10,000. A family that earns an income of $60,000 will a. pay $10,000 in taxes. b. receive an income subsidy of $3,000. c. receive an income subsidy of $10,000. d. neither pay taxes nor receive an income subsidy.

a. pay $10,000 in taxes.

Which of the following represents a problem in measuring inequality? a. Measurements of income distributions typically include in-kind transfers, which distort the measure of inequality. b. A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards. c. Transitory income is a better measure of inequality than permanent income. d. Both a and b are correct

b. A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards.

Which of the following explains the rise in income inequality in the United States from 1970 to 2008? a. An increase in minimum wages. b. An increase in the demand for skilled labor. c. An increase in the demand for unskilled labor. d. Reduced international trade with low-wage countries.

b. An increase in the demand for skilled labor.

Of the four countries below, which has the highest degree of income inequality? a. Japan b. Brazil c. South Africa d. United State

b. Brazil

Suppose the average value of in-kind transfers increases by $2,000 from 2010 to 2011. The poverty rate a. is more likely to understate the true level of poverty. b. is more likely to overstate the true level of poverty. c. will increase by $2,000 divided by the poverty level. d. Both b and c are correct.

b. is more likely to overstate the true level of poverty.

In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified. As long as the government only has "leaky buckets" at its disposal, a. the costs of welfare programs will exceed the benefits. b. it should not try to reach complete equality in income. c. income equality will be the best policy option. d. equality of economic opportunity will reduce society's utility.

b. it should not try to reach complete equality in income.

The political philosophy that views the redistribution of income as a form of social insurance is a. utilitarianism b. liberalism c. libertarianism d. welfarism

b. liberalism

Refer to Figure 20-5. If the government imposes a minimum wage above Wo, it is likely to a. increase employment to a level above Qo. b. reduce employment to a level below Qo. c. provide more income to the working poor than they collectively received before the minimum wage was set. d. have no effect on employment.

b. reduce employment to a level below Qo.

Libertarianism identifies a redistribution of income role for government when a. individual incomes vary widely. b. the income distribution is altered by illegal means (e.g. theft). c. a social planner is needed to smooth out the transitory income stream. d. workers lose their jobs as a result of structural changes in the economy.

b. the income distribution is altered by illegal means (e.g. theft).

The poverty rate is a. a measure of income inequality across families. b. the percentage of the population whose family income falls below a specified level. c. an absolute level of income set by the federal government for each family size. d. measured by the number of in-kind transfers that a family receives.

b. the percentage of the population whose family income falls below a specified level.

Liberalism is the political philosophy espoused by a. Robert Nozick. b. John Stuart Mill. c. John Rawls. d. Jeremy Bentham.

c. John Rawls.

A negative income tax system would a. make taxes more regressive. b. sever the link between tax policy and income distribution. c. collect from high-income households and give transfers to low-income households. d. eliminate progressive tax rates.

c. collect from high-income households and give transfers to low-income households.

Economic mobility in the United States is a. uncommon. Over 50 percent of poor families remain poor for 8 or more years. b. uncommon. Over 75 percent of poor families remain poor for 8 or more years. c. common. Fewer than 3 percent of poor families remain poor for 8 or more years. d. common. Fewer than 1 percent of poor families remain poor for 8 or more years

c. common. Fewer than 3 percent of poor families remain poor for 8 or more years.

Based on U.S. data for 2008, the poverty rate is the highest for which group of people? a. children b. married couples c. female households, no spouse present d. the elderly

c. female households, no spouse present

"Equality of opportunities is more important than equality of incomes." This statement would be most likely attributed to which political philosophy? a. utilitarianism b. liberalism c. libertarianism d. welfarism

c. libertarianism

0. Liberalism suggests that public policies should aim to a. maximize the sum of utility of everyone in society. b. maximize the well-being of the average person in society. c. maximize the well-being of the worst-off person in society. d. minimize the difference between the utility of the best-off person in the society and the utility of the worst-off person in society.

c. maximize the well-being of the worst-off person in society.

Economic mobility refers to the a. government's attempt to distribute monetary assistance to areas most in need. b. ability of families to freely relocate to find good jobs. c. movement of people among income classes. d. movement of resources from one country to another.

c. movement of people among income classes.

When we compare the income distribution of the United States to those of other countries, we find that the U.S. a. has one of the most unequal income distributions. b. has one of the most equal income distributions. c. ranks around the middle of the group. d. is second to China as the most unequal distribution.

c. ranks around the middle of the group.

A common criticism of government programs that are designed to assist the poor is that a. those who receive assistance rarely meet the criterion for eligibility. b. the majority of those below the poverty line refuse to accept government assistance. c. they create incentives for people to become "needy." d. they typically account for a majority of annual government expenditures.

c. they create incentives for people to become "needy."

The federal government sets the poverty line at roughly a. five times the cost of providing an adequate diet. b. four times the cost of providing an adequate diet. c. three times the cost of providing an adequate diet. d. two times the cost of providing an adequate diet.

c. three times the cost of providing an adequate diet.

Based on U.S. income data from 2008, the bottom fifth of all families received approximately what percent of all income? a. 48 percent b. 21 percent c. 10 percent d. 4 percent

d. 4 percent

Which of the following statements is correct? a. A disadvantage of a minimum-wage law is that it may benefit unskilled workers who are not lowincome workers. b. A disadvantage of a negative income tax program is that a poor person who chooses not to work many hours would receive a cash benefit. c. A disadvantage of an Earned Income Tax Credit (EITC) is that a person who is unable to work due to a disability does not benefit from the program. d. All of the above are correct

d. All of the above are correct

. U.S. income data over the last 75 years suggests that the distribution of income a. has gradually become more equal over the entire time period. b. has gradually become less equal over the entire time period. c. gradually became less equal until about 1970, then became more equal from 1970 to 2008. d. gradually became more equal until about 1970, then became less equal from 1970 to 2008.

d. gradually became more equal until about 1970, then became less equal from 1970 to 2008.

When the government taxes income as part of a redistribution program, a. the poor pay higher taxes. b. the rich always benefit more than the poor. c. the poor are encouraged to work. d. incentives to earn income are diminished.

d. incentives to earn income are diminished.

The poverty rate is based on a family's a. income, in-kind transfers, and other government aid. b. income and in-kind transfers. c. in-kind transfers only. d. income only.

d. income only.

3. A family's ability to buy goods and services depends largely on the family's a. economic mobility. b. place in the economic life cycle. c. transitory income. d. permanent income.

d. permanent income.

A utilitarian government has to balance the gains from greater income equality against the losses from distorted work incentives. To maximize total utility, therefore, the government a. would never tax labor income. b. must always achieve a fully egalitarian society. c. enacts policies that only benefit the middle class. d. stops short of a fully egalitarian society.

d. stops short of a fully egalitarian society.