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Economics 202 Ch 31

Principles of Economics Ch 31

QuestionAnswer
The basic goal in dealing with the problem of scarcity is to produce as much consumer satisfaction as possible with limited resourses available. What elements are neccessary to achieve this goal? Producing as much as possible of the combination of goods that provides the greatest consumer satisfaction and achieving the distribution of income that will yeild the greatest total utility for society.
The Highest Income 20% of households have: Over 14 times the share of total money income as the Lowest Income 20% of households.
Over a typical ten year period, fewer than half of the households in the Lowest Income 20% will: Remain in that group and most will move up to one of the higher Income Groups.
Lorenz Curve Contrasts the actual distribution of income with perfect equality.
The actual degree of income inequality can be overstated in these ways: The distribution of money income does not take into account the effect of taxes paid or of in-kind transfer payments received and by focusing on income distribution at a point of time rather than over a course of a lifetime.
The greater inequality in the distribution of wealth has these primary causes: Difference in saving rates and wealth distribution is measured at a point in time.
The inequality of wealth distribution is overstated in these ways: The distribution of wealth is measured at a point of time just like the distribution of income therefore wealth distribution compares persons at different career stages, and the value of human capital is not included in measuring wealth.
What are the causes of continuing income inequality? Natural ability, human capital, work and leisure choices, risk taking, wrongful employment discrimination, and luck.
Human Capital Developed ability that increases a person's productivity.
Most societies choose some variation or combination of what standards of income distribution? Marginal productivity standard (market) and equality standard.
Marginal Productivity Standard (Market) Income is disributed to resource owners based on the marginal productivity of their resources.
Equality Standard Income is distributed equally.
The basic justification for income redistribution is to: Increase total utility for society.
An ideal redistribution program would: Transfer from those with the highest income to those with the lowest income, interfere little with private market decisions & with the incentive for productivity, provide little opportunity for rent seeking, & be simple & inexpensive to administrater.
How does the actual income redistribution programin the U.S. compare with the ideal program? The income redistribution is not transfered from those with the highest income to those with the lowest, policies interfere with private market decisions & subject to rent seeking, effects both taxpayers & transfer recipients, & it is complex.
A negative income tax would: Transfer income to low-income households.
A negative income tax system would have a number of advantages over the current income redistribution program: It would transfer most from those the highest income to those with the lowest income, interfere less with private market decisions & with the incentive for productivity, provide no opportunity for rent seeking, & be simplier & less expensive to administer
Poverty A family whose income falls below a minimum necessary for an adequate standard of living is classified as living in poverty.
The percentage of Americans living below the poverty line may change little from year to year, but: The actual persons who are living in poverty change.
The keys to achieving financial security are: Believe that you can achieve financial security, investyour human capital, make good personal choices, and get on the good side of compound interest.
Good personal choices are particularly crucial in these areas: Health, marriage, and self-control.
Compound Interest Refers to interest paid on interest.
Gini Coefficient A measure of income inequality based on the Lorenz curve.
The higher the Gini coefficient: The greater the degree of income inequality.
The Gini coefficent for the United States: Is 45.
Created by: dengler