REVIEW QUESTIONS
- Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how information technology can increase income inequality if it is a complement to high-income workers like salespeople and managers, but a substitute for low-income workers like file clerks and telephone receptionists.
- Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how a program that increased educational levels for a substantial number of low-skill workers could reduce income inequality.
- Here is one hypothesis: A well-funded social safety net can increase economic equality but will reduce economic output. Explain why this might be so, and sketch a production possibility curve that shows this trade-off.
- Here is a second hypothesis: A well-funded social safety net may lead to less regulation of the market economy. Explain why this might be so, and sketch a production possibility curve that shows this trade-off.
- How is the poverty rate calculated?
- What is the poverty line?
- Who are the near-poor?
- What is the safety net?
- Briefly explain the differences between TANF, the earned income tax credit, SNAP, and Medicaid.
- A group of 10 people have the following annual incomes: $24,000, $18,000, $50,000, $100,000, $12,000, $36,000, $80,000, $10,000, $24,000, $16,000. Calculate the share of total income that each quintile receives from this income distribution. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution?
- Table 14.9 shows the share of income going to each quintile of the income distribution for the United Kingdom in 1979 and 1991. Use this data to calculate what the points on a Lorenz curve would be, and sketch the Lorenz curve. How did inequality in the United Kingdom shift over this time period? How can you see the patterns in the quintiles in the Lorenz curves?
Table 14.9 Income Distribution in the United Kingdom, 1979 and 1991 Share of Income
1979
1991
Top quintile
39.7%
42.9%
Fourth quintile
24.8%
22.7%
Middle quintile
17.0%
16.3%
Second quintile
11.5%
11.5%
Bottom quintile
7.0%
6.6%
- Who is included in the top income quintile?
- What is measured on the two axes of a Lorenz curve?
- What are some reasons why a certain degree of inequality of income would be expected in a market economy?
- What are the main reasons economists give for the increase in inequality of incomes?
- Identify some public policies that can reduce the level of economic inequality.
- Describe how a push for economic equality might reduce incentives to work and produce output. Then describe how a push for economic inequality might not have such effects.
