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
