Critical Thinking Questions

23 . What is measured on the two axes of a Lorenz curve? 24 . If a country had perfect income equality what would the Lorenz curve look like? 25 . How has the inequality of income changed in the U.S. economy since the late 1970s? 26 . What are some reasons why a certain degree of inequality of income would be expected in a market economy? 27 . What are the main reasons economists give for the increase in inequality of incomes? 28 . Identify some public policies that can reduce the level of economic inequality. 29 . 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.

Critical Thinking Questions

30 . What goods and services would you include in an estimate of the basic necessities for a family of four? 31 . If a family of three earned $20,000, would they be able to make ends meet given the official poverty threshold? 32 . Exercise 15.2 and Exercise 15.3 asked you to describe the labor-leisure tradeoff for Jonathon. Since, in the first example, there is no monetary incentive for Jonathon to work, explain why he may choose to work anyway. Explain what the opportunity costs of working and not working might be for Jonathon in each example. Using your tables and graphs from Exercise 15.2 and Exercise 15.3, analyze how the government welfare system affects Jonathan’s incentive to work. 33 . Explain how you would create a government program that would give an incentive for labor to increase hours and keep labor from falling into the poverty trap. 34 . Many critics of government programs to help low-income individuals argue that these programs create a poverty trap. Explain how programs such as TANF, EITC, SNAP, and Medicaid will affect low-income individuals and whether or not you think these programs will benefit families and children. 35 . Think about the business cycle: during a recession, unemployment increases; it decreases in an expansionary phase. Explain what happens to TANF, SNAP, and Medicaid programs at each phase of the business cycle (recession, trough, expansion, and peak). 36 . Explain how a country may experience greater equality in the distribution of income, yet still experience high rates of poverty. Hint: Look at the Clear It Up "How do governments measure poverty in low-income countries?" and compare to Table 15.5. 37 . The demand for skilled workers in the United States has been increasing. To increase the supply of skilled workers, many argue that immigration reform to allow more skilled labor into the United States is needed. Explain whether you agree or disagree. 38 . Explain a situation using the supply and demand for skilled labor in which the increased number of college graduates leads to depressed wages. Given the rising cost of going to college, explain why a college education will or will not increase income inequality. 39 . What do you think is more important to focus on when considering inequality: income inequality or wealth inequality? 40 . To reduce income inequality, should the marginal tax rates on the top 1% be increased? 41 . Redistribution of income occurs through the federal income tax and government antipoverty programs. Explain whether or not this level of redistribution is appropriate and whether more redistribution should occur. 42 . How does a society or a country make the decision about the tradeoff between equality and economic output? Hint: Think about the political system. 43 . Explain what the long- and short-term consequences are of not promoting equality or working to reduce poverty.

Problems

44 . In country A, the population is 300 million and 50 million people are living below the poverty line. What is the poverty rate? 45 . In country B, the population is 900 million and 100 million people are living below the poverty line. What is the poverty rate? 46 . Susan is a single mother with three children. She can earn $8 per hour and works up to 1,800 hours per year. However, if she does not earn any income at all, she will receive government benefits totaling $16,000 per year. For every $1 of income she earns, her level of government support will be reduced by $1. Create a table, patterned after this one. The first column should show Susan’s choices of how many hours to work per year, up to 1,800 hours. The second column should show her earnings from work. The third column should show her level of government support, given her earnings. The final column should show her total income, combining earnings and government support. Based on the table you created, what are the likely impacts of this kind of assistance program on Susan's incentive to work? Are there additional opportunity costs that may reduce her incentive to work? 47 . A group of 10 people have the following annual incomes: $55,000, $30,000, $15,000, $20,000, $35,000, $80,000, $40,000, $45,000, $30,000, $50,000. Calculate the share of total income each quintile of this income distribution received. 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 for 2005?