Econ 201 Chapter 20: Market Inequality

Under a negative income tax, if the guarantee is 25,000 and the break-even level is 35,000, what is the tax rate? −40 percent 71 percent −29 percent 40 percent

71 percent

Identify a possible effect of including in-kind transfers in the calculation of poverty. An increase in the growth estimates of a country A fall in the proportion of population above poverty line A change in the poverty line A fall in the percentage of population in poverty

A fall in the percentage of population in poverty

Identify a potential drawback of antipoverty welfare programs. Economic equality is achieved with minimal loss of economic efficiency. It supports only families with more than five members. A family's total income could increase as income from work increases. A family's total income could fall as income from work increases.

A family's total income could fall as income from work increases.

_____ is an example of in-kind transfers. A mortgage An income tax A treasury bill A food stamp

A food stamp

____ is likely to promote economic equality. A custom duty A regressive tax system A value-added tax A progressive tax system

A progressive tax system

Identify a possible solution for economic discrimination. A monopoly market structure A pure competitive market structure An authoritarian government A cut in income tax rates

A pure competitive market structure

Which of the following reasons for unequal incomes is not related to human capital? Differences in inherited wealth. Differences in schooling. Differences in ability. Differences in work experience.

Differences in inherited wealth.

_____ is a source of income inequality. The value of net exports of a country Differences in the tastes and preferences of consumers Redistribution of income Differences in investment in human capital

Differences in investment in human capital

Which of the following best balances equality and efficiency? Earned income tax credits Transfers in kind Marginal tax rates that approach zero as income increases Direct cash transfers available to people below the poverty line

Earned income tax credits

Under which of the following conditions are economists most likely to accept a policy that adversely affects the distribution of income? If the policy reduces trade deficits If the policy favors a particular segment of society If the policy is offset by a decrease in productivity If the policy leads to an increase in productivity

If the policy leads to an increase in productivity

Which of the following is true of free, competitive markets? In free markets, regressive taxation ensures equality. In free markets, a society achieves efficiency only at the expense of equality. In free markets, efficiency and equality coexist. In free markets, taxation improves efficiency in production.

In free markets, a society achieves efficiency only at the expense of equality.

Identify a statement that is true of a free-market system. It provides monetary help to people below the poverty line in order to eradicate poverty. It follows a proportional tax system. It increases the incomes of poor households more than rich households. It causes a relatively unequal distribution of income.

It causes a relatively unequal distribution of income.

Which of these statements about the poverty line is not true? It is an absolute measure of poverty, not a relative measure. It has been shown to overstate the number of poor. It can be considered an arbitrary number. It was established as part of the "War on Poverty."

It has been shown to overstate the number of poor.

Identify a statement that is true of economic discrimination. It can be easily measured for each category of workers in an economy. The level of economic discrimination can be reduced by a cut in income tax rates in a country. It is difficult to quantify the extent of economic discrimination. It occurs when all factors of production are paid based on their marginal productivity.

It is difficult to quantify the extent of economic discrimination.

Identify the sentence that best describes compensating wage differentials. People in jobs with high risk receive low wages. Mine workers receive higher wages than do high school teachers. Investment in training and education resulting in high wages. Graduates from college earn more income than experienced engineers.

Mine workers receive higher wages than do high school teachers.

____ is the welfare program that economists believe is most compatible with economic efficiency. In-kind transfers Temporary Assistance for Needy Families Medicaid Negative income tax

Negative income tax

Define the term "poverty line." Poverty line is a measure of unemployment in an economy. Poverty line is the level of income below which a household is not eligible for government assistance. Poverty line is an amount of income below which a family is considered poor. Poverty line is the average amount of income earned by households in a country.

Poverty line is an amount of income below which a family is considered poor.

Which of the following would not reduce inequality? Sales taxes. Direct cash transfers. Progressive personal income taxes. Inheritance/Estate taxes.

Sales taxes.

Which of the following is the essence of the trade-off between equality and efficiency? Taxes and transfer payments reduce the incentive to work and thereby reducing productivity and total output. Taxes and transfer payments lead to an increase in equality as well as economic efficiency without affecting the total output. Policies aimed at promoting equality leads to an increase in the incentive to work and thereby increases total output. Policies aimed at redistribution of income violate ethics.

Taxes and transfer payments reduce the incentive to work and thereby reducing productivity and total output.

Which of the following is an example of a compensating wage differential? The difference in wages of an electric line work and a cable TV installer The difference in wages of a fresh graduate and an employee with several years of experience The difference in wages of a college graduate and a high school drop out The difference in wages of a primary school teacher and a professor

The difference in wages of an electric line work and a cable TV installer

Identify a statement that is true of income distribution in the United States. The distribution of income has become more equal since the 1990s. The distribution of income has not appreciably changed since the 1990s. The United States has the lowest inequality in income distribution when compared to the developed economies of the world. The distribution of income has become more unequal since the 1980s.

The distribution of income has become more unequal since the 1980s.

Which of the following is true? The negative income tax (NIT) attempts to balance equality and fairness with efficiency. The earned income tax credit (EITC) has been shown to be less efficient than standard welfare programs. With the right policies, output can be maximized while equality is achieved. The simplicity of direct cash transfers reduces efficiency costs.

The negative income tax (NIT) attempts to balance equality and fairness with efficiency.

Identify a statement that provides a relative definition of poverty. The poor are those who fall too far behind the average income of a country. A household is poor if it is headed by a single parent. The poor are those who earn an income equal to the average income of a country. A household is poor if it has more than four members and if it does not own a house.

The poor are those who fall too far behind the average income of a country.

Identify a criticism of affirmative action programs. They affect economic efficiency by reducing the incentive to work. They cause a fall in the wages offered by employers for a particular job. They affect economic efficiency by preventing firms from choosing the most productive employee for a particular job. They cause inequality in income distribution.

They affect economic efficiency by preventing firms from choosing the most productive employee for a particular job.

A possible impact of tax loopholes is that they improve the standard of living of the people below poverty line. affect the objective of a progressive tax system. increase equality in an economy. increase the revenue generated from tax collection.

affect the objective of a progressive tax system.

Income inequality is an issue that can be alleviated without an efficiency cost. an absolute measure of poverty. not a concept derived from relative poverty. affected by differences in marginal productivity.

affected by differences in marginal productivity.

The absolute definition of poverty is an overstatement of the poverty condition in an economy. an optimistic definition of poverty. based on average income. the estimation of the percentage of population that falls above the average income of a country.

an optimistic definition of poverty.

A possible effect of a redistribution program that reduces poverty and income inequality is that it leads to an increase in the supply of labor in the economy. leads to a reduction in government expenditure. causes a fall in the GDP of the country. causes an increase in the total output of the country.

causes a fall in the GDP of the country.

An objective of affirmative action programs is to combat discriminatory practices by employers. combat deficit in the factor market. establish equality in income distribution in an economy. provide incentives to work.

combat discriminatory practices by employers.

According to economists, a policy implemented to reduce poverty should improve the standard of living of the households below poverty line irrespective of its impact on the incentive to work. increase the purchasing power only for households above poverty line. decrease inequality. levy high tax rates for the rich portion of the population.

decrease inequality.

Research shows that income distribution is more equal in countries with a communist government. countries with a trade relation with the United States. developed countries. underdeveloped countries.

developed countries.

Economic discrimination occurs when equivalent factors of production receive different payments for equal contribution to output. all factors of production are paid based on their marginal productivity. factors with different skill sets and education receive different compensation. older workers receiving higher compensation than younger workers at an accounting firm.

equivalent factors of production receive different payments for equal contribution to output.

The basic objective of a negative income tax is to promote a proportional tax system in order to increase equality in the economy. help the poor without reducing the incentive to work. provide monetary benefits to the poor so that they have no need to work. tax the rich more in order to bring down their income closer to the poverty line.

help the poor without reducing the incentive to work.

Investment in training and education is considered as a(n) cause of compensating wage differentials. important cause of deficit in the balance of payments of a country. important cause of income differentials. waste of economic resources.

important cause of income differentials.

A negative income tax is designed to fix all the problems with traditional welfare programs. is designed to create incentives to work for families below the income guarantee. does not create disincentives to work for families with incomes above the income guarantee. does not create disincentives to work for families with incomes at the income guarantee.

is designed to create incentives to work for families below the income guarantee.

A _____ can make income distribution in the United States more equal. consumption tax value-added tax personal income tax payroll tax

personal income tax

According to the relative concept of poverty, urbanization and globalization are answers to the problems created by poverty. a progressive tax system cannot alleviate poverty. public policy is not an efficient solution for eliminating poverty. poverty can be entirely eliminated by efficient implementation of public policy.

public policy is not an efficient solution for eliminating poverty.

If the income is distributed equally among households in Genovia, the poorest fifth of the population in the country experiences no change in their disposable income. receives the highest share of society's total income. receives 20 percent of society's total income. receives 50 percent of society's total income.

receives 20 percent of society's total income.

Relative poverty does not account for differences in time and location. is considered an arbitrary measure of poverty. is an optimistic measure of poverty. recognizes that poverty is culturally determined.

recognizes that poverty is culturally determined.

In the United States, the share of income among the middle two-fifths of income earners has remained stable, while the share in the lowest fifth has fallen and the highest fifth has increased, since the 1970s. the share of income among the lower four-fifths of income earners has decreased since the 1970s. income inequality has steadily decreased since the 1970s. income inequality has remained relatively stable since the 1970s.

the share of income among the lower four-fifths of income earners has decreased since the 1970s.