Micro Exam 3 Review

public assistance programs

- Supplemental Security Income (SSI) - Temporary Assistance for Needy Families (TANF) - Supplemental Nutrition Assistance Program (SNAP) - Medicaid - Earned income tax credit

Social Security

A federal pension program (financed by payroll taxes on employers and employees) that replaces part of the earnings lost when workers retire, become disabled, or die.

unemployment compensation

A federal-state social insurance program (financed by payroll taxes on employers) that makes income available to workers who are unemployed.

Supplemental Security Income (SSI)

A federally financed and administered program that provides a uniform nationwide minimum income for the aged, blind, and disabled who do not qualify for benefits under Social Security in the United States.

Elasticity equation

Ew = % change in quantity demanded / % change in wage rate

Education and Training

People differ in the amount of education and training they obtain and thus in their capacity to earn income

payroll taxes probable incidence

Workers pay the full tax levied on their earnings and part of the tax levied on their employers

Which of the following is not considered to be a determinant of labor demand? a. Change in product demand b. Change in the wage rate c. Change in productivity d. Change in the price of other resources

b. Change in the wage rate

The amount that each additional unit of labor adds to the firm's total cost is called: a. Marginal resource product b. Marginal revenue product c. Marginal revenue cost d. Marginal resource cost

d. Marginal resource cost

Federal Government's greatest source of tax revenue a. Payroll taxes b. Corporate c. Excise taxes d. Personal income taxes

d. Personal income taxes

corporate income tax probable incidence

in the short run - the full tax falls on owners of the businesses in the long run - some of the tax may be borne by workers through lower wages

marginal resource cost

(MRC) the change in a firm's total cost when it employs one more unit of labor

largest categories of Federal expenditures

- Pensions and income security - Health - National defense - Interest on public debt - other

main sources of Federal tax revenues

- Personal income tax - Payroll taxes - Corporate income tax - Excise and sales tax

how supply elasticities affect tax incidence

- With a specific demand, the more inelastic the supply → the larger the portion of tax is shifted to the producers - When supply is elastic, consumers bear most of the tax - When supply is inelastic, sellers bear most of the tax

how demand elasticities affect tax incidence

- With a specific supply, the more inelastic the demand for the product → the larger the portion of tax is shifted to consumers - When demand is perfectly elastic - the incidence of tax is entirely on the sellers - When demand is perfectly inelastic - the incidence of tax is entirely on the consumers

Government role in the economy

- gov purchases products from the product market, and resources form the resource market - gov provides goods and services to businesses and households and collects taxes from them

major expenditures of the local government

-Education -Welfare, health, and hospitals -Public safety -Housing, parks, and sewage -Streets and highways

major expenditures of state government

-Education -Public welfare -Health and hospitals -Highway maintenance and construction -Public safety

Case for minimum wage

-It can increase wage rates without causing significant unemployment and may even create more jobs -May cause firms to find more productive tasks for minimum wage workers therefore increasing producitvity

major tax revenues of the local government

-Property tax -Sales and excise tax

Major tax revenues of state government

-Sales and excise tax -State personal and corporate income tax -License fees and other taxes

effect on labor demand of an increase or decrease in one of its 3 determinants

-The reduction in the price of capital goods = lower production costs -An increase in the price of capital goods = higher production costs -When labor and capital are complementary, a DECLINE in the price of capital increases the demand for labor

Case against minimum wage

-it causes employers to hire less workers -it is "Poorly targeted" meaning that it only helps workers that don't live in impoverished households

7 causes of income inequality in the US

1. Ability 2. Education and Training 3. discrimination 4. preferences and risks 5. unequal distribution of wealth 6. market power 7. luck, connections and misfortunes

2 reasons why noncompeting groups of workers earn different wages

1. Ability 2. Education and training

3 factors which would change a firm's demand for labor

1. Changes in product demand 2. Changes in productivity 3. Changes in the prices of other resources

3 determinants of the price elasticity of labor demand

1. Ease of resource substitutability 2. Elasticity of product demand 3. Ratio of labor cost to total cost

3 probable causes of growing income inequality in the US over the past 3 decades

1. Greater demand for highly skilled workers 2. Demographic Changes 3. International trade, immigration, and decline in unionism

3 characteristics of a purely competitive market

1. Many employers compete for a specific type of labor. 2. Many workers with identical skills supply that type of labor. 3. Individual employers are "wage takers."

2 basic kinds of programs in the US system for income maintenance

1. Social Insurance Programs EX: social security & Medicare; Unemployment Compensation 2. Public Assistance Programs EX: welfare

3 main sources of government revenue

1. Taxes 2. Proprietary income 3. Funds borrowed by selling bonds to the public

Supplemental Nutrition Assistance Program (SNAP)

A government program that provides food money to low-income recipients by depositing electronic money onto special debit cards.

earned-income tax credit (EITC)

A refundable federal tax credit provided to low-income wage earners to supplement their families' incomes and encourage work.

the demographic groups most affected by the poverty in the US

African Americans and Hispanics

Craft union model

Effectively reduces supply of labor - Restricts immigration - Reduces child labor - Encourages compulsory retirement - Enforces shorter workweek Exclusive unionism - Occupational licensing

Gini ratio =

Gini ratio = area A / (area A + area B)

the relationship between government borrowing and deficit spending

Government spending that is financed by borrowing is referred to as deficit spending because a government's budget is said to be "in deficit" if the government's spending in a given time period > the money it collects from taxes and proprietary income during that period

Apply the MRP = MRC rule to determine the quantity of labor a firm will hire

Hire additional units of labor up to the point at which labor's MRP is equal to its MRC

Industrial union model

Inclusive unionism - Auto and steel workers

the case for income inequality based on incentives and efficiency

Income inequality: Average household income: - $68,426 in 2014 - Among the highest in the world Distribution by quintiles Income mobility - People change quintiles Government redistribution Taxes and transfers

Marginal resource cost (MRC) =

MRC = Change in total (labor) cost/Unit change in labor

Marginal revenue product (MRP) =

MRP = Change in total labor/Unit change in labor

rule used by a profit-maximizing firm to determine how much labor it will employ

MRP = MRC rule

case for income inequality based on the maximum of total utility

People generally spend the first dollar they receive on the products they value the most. (marginal utility is high) As a consumer's most pressing wants are satisfied, he then spends extra income on less-important goods (lower marginal utility) - This causes the marginal-utility-from-income curve to slope downward

effects of time on income mobility and the distribution of US income

Short run: young and old would receive low incomes while middle-aged would receive high incomes Long run: more equally distributed between classes

how is the market demand for labor found?

Sum horizontally the individual labor demand curves of all firms hiring a particular kind of labor to obtain the market demand for that labor

Temporary Assistance for Needy Families (TANF)

The basic welfare program (financed through general tax revenues) for low-income families in the United States.

derived demand

The demand for a resource that depends on the demand for the products it helps to produce

why the demand for labor is a derived demand

The demand for labor is derived from the demand for the products that labor helps to produce Labor resources do not usually directly satisfy customers...but they do so indirectly through their use in producing goods and services. EX: Nobody wants to directly consumer labor services of a software engineer, but many want to use the software that the engineer creates.

income mobility

The extent to which income receivers move from one part of the income distribution to another over some period of time.

progressivity of the US tax structure overall and at the Federal, state, and local levels

The federal tax system is progressive The state and local tax structures are largely regressive The overall U.S. tax system is progressive

MRP = MRC rule

The principle that to maximize profit (or minimize losses), a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC), the latter being the wage rate in a purely competitive labor market.

inclusive unionism

The union practice of including as members all workers employed in an industry.

exclusive unionism

The union practice of restricting the supply of skilled union labor to increase the wage rate received by union members.

definition of poverty based on the US government standards

a condition in which a person or family does not have the means to satisfy basic needs for food, clothing, shelter, and transportation

Medicaid

a federal program that helps finance the medical expenses of individuals covered by the SSI and TANF programs

A major distinction between government purchases and government transfer payments is that: a. Government purchases divert resources from private sues to public uses while transfer payments do not b. Transfer payments divert resources from private uses to public uses while government purchases do not c. Government purchases java to be approved by Congress while transfer payments do not d. Government purchases of goods and services have increased more rapidly during the past 20 years than have transfer payments

a. Government purchases divert resources from private sues to public uses while transfer payments do not

In order to determine the market labor demand curve for particular labor service, one must: a. Sum horizontally the labor demand curves b. Sum vertically the labor demand curves c. Take the most rightward labor demand curve and use it as the market demand curve

a. Sum horizontally the labor demand curves

Which of the following is a public assistance or welfare program as opposed to a social insurance program? a. Supplement Security (SSI) b. Unemployment compensation c. Medicare

a. Supplement Security (SSI)

The entrance of large numbers of "baby boomers" into the labor force in the 1970z and 1980s: a. increased income inequality b. Caused substantial reductions in permanent unemployment c. Lessened income inequality d. Had no impact on income inequality

a. increased income inequality

Market Power

ability to "rig the market"... doctors, lawyers, dentists can have more power because they are a licensed group; gain or enhance monopoly power

specific excise taxes probable incidence

consumers, producers, or both, depending on elasticities of demand and supply

Proportional tax

average rate stays the same as income increases or decreases Ex: Corporate income tax

Regressive tax

average tax rate declines as income increases Ex: Payroll taxes and sales tax

Progressive tax

average tax rate increases as income increases Ex: Personal income tax

The federal personal income tax is based on the: a. Benefits-received principle of taxation b. Ability-to-pay principle of taxation c. Law of comparative advantage d. Fallacy of limited decisions

b. Ability-to-pay principle of taxation

sales tax probable incidence

consumers who buy taxed products

The marginal revenue product of labor is equal to: a. The change in total revenue x by the unit change in labor b. The change in total revenue divided by the unit change in labor c. The unit change in labor divided by the change in total revenue d. Total revenue divided by the total labor

b. The change in total revenue divided by the unit change in labor

The equality-efficiency trade-off best describes the: a. Trade-off between a lower benefit-reduction rate and a higher break-even level of income maintenance plans b. The choice between "more equality and less output" and "less equality and more output" c. Failure to include non cash benefit in calculating the poverty rate d. Inequalities in Temporary assistance for NEedy families benefits among the various states

b. The choice between "more equality and less output" and "less equality and more output"

Suppose all workers are identical, but working for ajax is more pleasant than working for Acme. In all other non wage aspects the two first offer the same job characteristic. We would expect: a. Wage rates at Ajax to be higher than Acme b. Wage rates at Ajax to be lower than Acme c. Wage rates at Ajax and Acme to be the same d. Workers at Ajax would have to be monitored more closely than those at Acme

b. Wage rates at Ajax to be lower than Acme

Craft unions have typically been most effective in raising wage rates by: a. Increasing the supply of labor b. Increasing the demand for labor c. Decreasing the supply of labor d. Decreasing the demand for labor

c. Decreasing the supply of labor

Critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would: a. Increase frims' demand for labor b. Decrease the supply of labor c. Increase unemployment in the labor market d. Cause firms to substitute labor for capital

c. Increase unemployment in the labor market

An industrial union: a. Is most concerned with decreasing the supply of workers in an industry b. Organizes workers with similar skills or jobs in an industry c. Organizes skilled and unskilled workers in an industry d. Is most effective in a purely competitive market

c. Organizes skilled and unskilled workers in an industry

The incidence of a tax pertains to: a. The degee to which it alters the distribution of income b. How easy it is to evade the tax c. Who actually bears the burden of tax d. The progressiveness or regressiveness of tax rates

c. Who actually bears the burden of tax

Difference in "job performance" and "job risks" a. Illustrate the trade-off between equality and efficiency b. Can be used to broaden the concept of income c. Result from government transfer programs d. Are a cause of income inequality

d. Are a cause of income inequality

If the government levies a tax or fee on hunting licenses and uses the resulting revenue for wildlife stocking programs, this would be an example of: a. A progressive tax b. A regressive tax c. The ability-to-pay principle of taxation d. The benefits-received principle taxation

d. The benefits-received principle taxation

A refundable federal tax credit provided to low-income wage earners to supplement their families income and encourage work is called: a. Medicaid b. The supplemental nutrition assistance program (SNAP) c. The refundable credit for low earners (RCFLE) d. The earned income tax credit (EITC)

d. The earned income tax credit (EITC)

what happens when union are successful in raising wages above equilibrium

employment in unionized firms is reduced

progessivity or regressivity of corporate income taxes

essentially proportional - in the long-run workers may bear some tax since it reduces the return on investment and slows capital accumulation; in the short-run the corporate owners (shareholders) bear the tax through lower dividends and share values

Medicare

financed by payroll taxes and provides for (1) compulsory hospital insurance for senior citizens, (2) low-cost voluntary insurance to help older Americans pay physicians' fees, and (3) subsidized insurance to buy prescription drugs

property taxes probable incidence

owners in the case of land and owner-occupied residences tenants in the case of rented property consumers in the case of business property

Ability

people have different mental, physical, and aesthetic talents

Preferences and Risks

people who prefer to stay at home or work part-time make less than those willing to take unpleasant and long-hour jobs

progessivity or regressivity of personal income tax

progressive - average tax rates rise with income

progessivity or regressivity of sales taxes

regressive - a larger portion of a low-income person's income is exposed to the tax than is the case for a high-income person; the rich pay no tax on the part of income that is saved while the poor are unable to save

progessivity or regressivity of property taxes

regressive - higher for low-income families than high-income families because the poor must spend a larger proportion of their incomes for housing

progessivity or regressivity of payroll taxes

regressive - only apply to wage and salary income; people earning high incomes tend to derive a higher percentage of their total incomes from nonwage sources than people who have incomes below $128,000.

Marginal revenue product (MRP) of labor

the change in a firm's total revenue when it employs one more unit of labor

tax incidence

the degree to which a tax falls on a particular person or group

Personal income tax probable incidence

the household or individual on which it is levied

ability-to-pay principle

the idea that those who have greater income (or wealth) should pay a greater proportion of it as taxes than those who have less income (or wealth).

benefits-received principle

the idea that those who receive the benefits of goods and services provided by government should pay the taxes required to finance them.

Purpose of minimum wage

to provide a "wage floor" that helps less-skilled workers earn enough income to escape poverty