20.1 Use
quintiles to briefly summarize the degree of income inequality in the
United States. How and to what extent does government reduce income
inequality?
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20.2 Assume
that Al, Beth, Carol, David, and Ed receive incomes of $500, $250,
$125, $75, and $50, respectively. Construct and interpret a Lorenz curve
for this five-person economy. What percentage of total income is
received by the richest quintile and by the poorest quintile?
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20.3 How
does the Gini ratio relate to the Lorenz curve? Why can't the Gini
ratio exceed 1? What is implied about the direction of income inequality
if the Gini ratio declines from 0.42 to 0.35? How would one show that
change of inequality in the Lorenz diagram?
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20.4 Why is the lifetime distribution of income more equal than the distribution in any specific year?
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20.5 Briefly
discuss the major causes of income inequality. With respect to income
inequality, is there any difference between inheriting property and
inheriting a high IQ? Explain.
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20.6 What factors have contributed to increased income inequality since 1970?
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20.7 Should
a nation’s income be distributed to its members according to their
contributions to the production of that total income or according to the
members’ needs? Should society attempt to equalize income or economic
opportunities? Are the issues of equity and equality in the distribution
of income synonymous? To what degree, if any, is income inequality
equitable?
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20.8 Do
you agree or disagree? Explain your reasoning. "There need be no
trade-off between equality and efficiency. An 'efficient' economy that
yields an income distribution that many regard as unfair may cause those
with meager incomes to become discouraged and stop trying. So
efficiency may be undermined. A fairer distribution of rewards may
generate a higher average productive effort on the part of the
population, thereby enhancing efficiency. If people think they are
playing a fair economic game and this belief causes them to try harder,
an economy with an equitable income distribution may be efficient as
well"6
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20.9 Comment on or explain: L04a. Endowing everyone with equal income will make for very unequal enjoyment and satisfaction.b. Equality is a "superior good"; the richer we become, the more of it we can afford.c. The mob goes in search of bread, and the means it employs is generally to wreck the bakeries.d. Some freedoms may be more important in the long run than freedom from want on the part of every individual.e.
Capitalism and democracy are really a most improbable mixture. Maybe
that is why they need each other—to put some rationality into equality
and some humanity into efficiency.f.
The incentives created by the attempt to bring about a more equal
distribution of income are in conflict with the incentives needed to
generate increased income
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20.10 How
do government statisticians determine the poverty rate? How could the
poverty rate fall while the number of people in poverty rises? Which
group in each of the following pairs has the higher poverty rate: (a) children or people age 65 or over? (b) African Americans or foreign-bora noncitizens? (c) Asians or Hispanics?
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20.11 What
are the essential differences between social insurance and public
assistance programs? Why is Medicare a social insurance program, whereas
Medicaid is a public assistance program? Why is the earned-income tax
credit considered to be a public assistance program?
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20.12
The
labor demand and supply data in the following table relate to a single
occupation. Use them to answer the questions that follow. Base your
answers on the taste‐for‐discrimination model....a. Plot the labor
demand and supply curves for Hispanic workers in this occupation.
b. What are the equilibrium Hispanic wage rate and quantity of Hispanic employment?
c. Suppose the white wage rate in this occupation is $16. What is the Hispanic‐to-white wage ratio?
d. Suppose a particular employer has a discrimination coefficient d of $5 per hour. Will that employer hire Hispanic or white workers at the Hispanic‐white wage ratio indicated in part c ? Explain.
e.
Suppose employers as a group become less prejudiced against Hispanics
and demand 14 more units of Hispanic labor at each Hispanic wage rate in
the table. What are the new equilibrium Hispanic wage rate and level of
Hispanic employment? Does the Hispanic‐white wage ratio rise or fall?
Explain.
f. Suppose Hispanics as a group increase their labor
services in that occupation, collectively offering 14 more units of
labor at each Hispanic wage rate. Disregarding the changes indicated in
part e , what are the new equilibrium
Hispanic wage rate and level of Hispanic employment? Does the
Hispanic‐white wage ratio rise, or does it fall?
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20.13 Males
under the age of 25 must pay far higher auto insurance premiums than
females in this age group. How does this fact relate to statistical
discrimination? Statistical di: crimination implies that discrimination
can persist indefinitely, while the taste-for-discrimination model
suggest that competition might reduce discrimination in the long
run. Explain the difference.
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20.14 Use
a demand-and-supply model to explain the impact of occupational
segregation or "crowding" on the relative wage rates and earnings of men
and women. Who gains and who loses from the elimination of occupational
segregation? Is there a net gain or a net loss to society? Explain.
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20.15 LAST WORD
Go to Table 1 in the Last Word and compute the ratio of average wealth
to median wealth for each of the 5 years. What trend do you find? What
is your explanation for the trend? The Federal estate tax redistributes
wealth in! two ways: by encouraging charitable giving, which reduces the
taxable estate, and by heavily taxing extraordinarily large estates and
using the proceeds to fund government programs. Do you favor repealing
the estate tax? Explain
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