Econ 18

Is the class system in the United States more like a pyramid, diamond, or pentagon? Why is this so?

A pentagon. The reason is limited upward mobility in the United States.

Should poverty be defined absolutely or relatively? Why?

Arguments could be made for both approaches. Poverty could be defined relatively, since one of our concerns is the distribution of income. Poverty could also be defined absolutely, since another of our concerns is that people have enough to eat.

True or false: Government taxation has been a very effective way to make income more equally distributed.

False,

True or false: If lifetime incomes within a country are equally distributed, the Lorenz curve for any particular year must coincide with the line of absolute equality.

False, people just have to have different incomes for the Lorenz curve to be below the line of absolute equality.

True or false: Determining a position on income distribution is unnecessary for a policy economist since it involves normative judgments.

False, since all real-world policies affect the distribution of income, a policy economist needs to determine the normative judgment on it.

True or false: Since the rich have much more control over politics and advertising, our society generally redistributes less income than is appropriate.

False, the amount of income a society redistributes requires a normative judgment on which people differ, so we cannot make blanket statements about how much redistribution if appropriate.

True or false: Since there are more poor than rich, our one-person one-vote democratic political system generally redistributes more income than is appropriate.

False, the amount of income a society redistributes requires a normative judgment on which people differ, so we cannot make blanket statements about how much redistribution is appropriate.

The horizontal axis on the graph of a Lorenz curve measures the cumulative percentage of income.

False, the horizontal axis of the Lorenz curve measures the cumulative percentage of families and the vertical axis of the Lorenz curve measures the cumulative percentage of family income.

True or false: If there are significant incentive effects, then taxation should not be used to redistribute income.

False, where incentive effects are large, taxes are less effective at redistributing income, but that does not mean that taxation should not be used if one believes redistributing income is important, and there are no better ways.

True or false: By focusing on equality of opportunity, one can arrive at a relatively clear-cut analysis of fairness that most people would agree with.

False, while equality of opportunity might eliminate some dimensions of fairness that people consider important it does not eliminate others, and thus leaves many unanswered questions.

True or false: Because it is difficult to measure socioeconomic dimensions of income distribution, economists focus largely on share distribution of income when analyzing the distribution of income.

False, while it may be difficult to accurately measure and identify all the socioeconomic dimensions, the government does collect data on race, ethnic background and geographic regions, which are included when analyzing the distribution of income.

According to the text, of the following programs, which has been the most effective method of income redistribution in the United States?

Federal expenditure programs

In what instance would John Rawls support greater income inequality?

He would support income inequality if it could make the least well-off better in absolute terms.

Why did Bertrand de Juvenal argue for a high level of income inequality?

Income inequality is necessary to sustain the arts, beauty, education, and civilization.

What would the Lorenz curve for lawyers represent?

It would be a geometric representation of the distribution of income among lawyers in a given country at a given time by quintile.

A geometric representation of the share distribution of income among families in a given country at a given time called the

Lorenz curve

Which of the following are problems in determining whether an equal income distribution is fair?

People don't start from equivalent positions and people's needs and efforts differ

Which of the following is least likely to play a role in whether an equal income distribution is fair?

People's efforts differ.

Why are we concerned with the distribution of income between whites and blacks, but not between redheads and blondes?

Research has shown that income differs substantially between blacks and whites. A substantial fraction is the result of discrimination. There is no overwhelming evidence to indicate discrimination exists on the basis of hair color.

In today's world, the analysis of income distribution usually includes reference to which of the following?

Share distribution, ethnic background, race, and geographic regions

Which of the following can be determined by looking at a Lorenz curve?

The relative division of total income among income groups.

How does social mobility in the United States compare to that in Britain? Why do you think this is so?

There is less social mobility in the United States than in Great Britain. This is because there is greater discrimination in the United States. Additionally, the United States has less effective expenditure programs and a less progressive tax system than Great Britain.

True or false: Considerations of fairness are considerations where the devil's advocate tool is helpful.

True

True or false: John Rawls believes that policy should be directed at making the least well-off people as well off as possible.

True

True or false: Many people's judgment about equality focuses more on equality of opportunity than on equality of outcome because it incorporates additional dimensions of fairness that they find important.

True

True or false: People's sense of fairness is based on more than the share distribution of income.

True

How has the median income of women compared to men changed since 1980? What do you think is the cause?

Women's income as a fraction of men's income has risen because there is lower discrimination against women, higher education levels among women, and more women entering the workforce.

When a tax is regressive, an increase in income is associated with

a decrease in the average tax rate.

Government programs have

a slight impact on income equality.

In Taxland, the first $10,000 earned per year is exempt from taxation. Between $10,000.01 and $30,000, the tax rate is 25 percent. Between $30,000.01 and $50,000, it's 30 percent. Above $50,000, it's 35 percent. You're earning $80,000 a year. a. How much in taxes will you have to pay? b. What is your average tax rate? c. What is your marginal tax rate?

a. $21,500 b. 27% c. 35%

Some economists have proposed making the tax rate progressivity depend on the wage rate rather than the income level. Thus, an individual who works twice as long as another but who receives a lower wage would face a lower marginal tax rate. a. What effect would this change have on incentives to work? b. Would this system be fairer than our current system? Why or why not? c. If, simultaneously, the tax system were made regressive in hours worked so that individuals who work longer hours faced lower marginal tax rates, what effect would this change have on hours worked?

a. This would increase the incentive to work, since working longer hours will not push a person up into the higher tax bracket. b. To the extent that the wage rate measures taxability better than income does, this tax system is fair. c. If the wages and hours worked could be properly measured, such a system would provide an incentive for people to work more hours because their income would rise.

The Lorenz curve for income for the United States is

above a curve that shows the wealth distribution for the United States.

Socioeconomic distribution of income is the

allocation of income among socioeconomic groups.

When a tax is progressive, an increase in income is associated with

an increase in the average tax rate.

If income were equally distributed within age brackets, then the Lorenz curve

could be straight or bowed outward to the right.

The horizontal axis on the graph of a Lorenz curve measures the

cumulative percentage of families.

If poverty were measured in terms of absolute real income, the proportion of people classified as poor would tend to

fall over time.

Among countries of the world, the United States has

neither the most equal nor the most unequal distribution of income.

Whether a particular income distribution is fair is a:

normative question about which people can agree and disagree

Judgments about the fairness of income distribution are

normative statements

A tax in which the average rate increases with income, is called a

progressive tax

A tax schedule in which the average tax rate is constant regardless of income level, is called a

proportional tax

Someone who doesn't support income redistribution programs would point to the possibility that they

reduce the incentive to work.

According to official statistics in the United States, a person is classified as poor if the person's income is below the poverty line

regardless of government benefits received.

When the average tax rate decreases as income increases, it is called a

regressive tax.

Share distribution of income is the

relative division of total income among income groups.

A relative measure of poverty will tend to have a poverty threshold that

rises over time

The amount of income families with a husband present get relative to families with single mothers.

share distribution of income among families in a given country at a given time.

Any income distribution can be justified by someone because:

the goals of society vary and models have the same outcomes but are interpreted differently.

Some side-effects of programs to redistribute income are:

the incentive effect to look needier than you are, the labor/leisure incentive effect, and the avoidance and evasion incentive effect.

Wealth is

the value of the assets individuals own less the value of what they owe.

A family is said to be in poverty if its income is equal to or less than

three times an average family's minimum food expenditures as calculated by the U.S. Department of Agriculture.

A family is officially living in poverty if their income is less than

three times the U.S. Department of Agriculture's minimum food budget.

The income below which a family is considered to live in poverty is called the poverty

threshold

True or false: Where incentive effects are large, taxes are less effective at redistributing income.

true

The difference between wealth and income is that

wealth is a stock concept, while income is a flow concept.

Would the Lorenz curve for the world be more or less bowed out compared to the Lorenz curve for the United States?

The Lorenz curve for the world would be more bowed out, since income is very widely disparate among countries.

Which of the following is an example of socioeconomic distribution of income?

The amount of income families with a husband present get relative to families with single mothers.

The U.S. uses a definition of poverty that is

both relative and absolute.

Switching from a relative measure of poverty to an absolute measure of poverty will usually cause the number of people classified as poor to

decrease over time