Exam 21: Income Inequity and Poverty

Because people can borrow and save to smooth out life-cycle changes in income, their standard of living in any year depends more on lifetime income than on that year's income.

The life cycle effect characterises a lifetime income profile in which income:

You are a critic of welfare reforms that impose a time limit on the number of years a person is eligible for welfare benefits. What is the foundation of your critique?

The concept of diminishing marginal utility is embodied in the utilitarian rationale for:

The distortionary effect of government redistribution programs is analogous to filling a well with a leaky bucket.

Economists who support minimum wage legislation are likely to believe that the: (i) demand for unskilled labour is relatively inelastic (ii) demand for unskilled labour is relatively elastic (iii) supply of unskilled labour is relatively elastic

As a result of the trade-off between income equality and incentives to work, an optimal redistribution policy:

Many people have been critical of statistics that are used to characterise income inequality on the grounds that as long as the average income of the poor is increasing, their position relative to the rich should not matter. Evaluate this critique.

Which of the following statements about anti-poverty programs are generally true? (i) they generate a very low marginal tax rate on income (ii) they create disincentives to work (iii) they discourage saving among recipient groups

Whether or not policymakers should try to make our society more egalitarian is largely a matter of:

Which of the following statements about minimum-wage laws are true? Minimum wages: (i) force a market imbalance between the supply and demand for labour (ii) increase the efficiency of labour markets (iii) are most effective at alleviating poverty when labour demand is highly elastic

Using demand-supply analysis, show how the elasticity of demand of labour determines the magnitude of unemployment when an effective minimum wage is imposed.

Which of the following is an explanation of why high-income men are increasingly likely to marry high-income women? (i) the women's movement (ii) the urbanisation of society (iii) comparable worth legislation

Suppose income was equally distributed across all families, then:

Rawls argued that behind a 'veil of ignorance':

Table 21-1 Given Table 21-1, which country has a more equally distributed income? Explain your answer.

Political philosophers agree in their views about the role of government in altering the distribution of income.

Which of the following formulas is most representative of a negative income tax proposal?

In gauging the inequality of living standards, annual income is more relevant than permanent income.

Table 21-2 Total utility derived from various income levels Table 21-2 reflects the levels of total utility received from income for each of four members of a society. a. Assume that the society has the following income distribution: Peter - $3 Paul - $7 Mary - $5 Jane - $3 Is it possible for the government to increase total aggregate utility by redistributing income among members of society? Explain your answer. b. Assume that the government has $19 to allocate among the four members of society. (Assume that no one has any income to start with.) If the government is interested in distributing income in a way that maximises aggregate total utility, how should it distribute the $19 of income? c. Does Table 21-2 describe a situation characterised by diminishing marginal utility? Explain your answer.