Problems

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?

FIGURE 16.1Former President Obama’s Health Care Reform The Patient Protection and Affordable Care Act (PPACA), more commonly known as Obamacare, relates strongly to the topic of this chapter. While originally a controversial topic, it has gained majority approval at 55% as of March 2022. (Credit: “Obama at Healthcare rally at UMD” by Daniel Borman/Flickr Creative Commons, CC BY 2.0)

In this chapter, you will learn about:

• The Problem of Imperfect Information and Asymmetric Information
• Insurance and Imperfect Information

BRING IT HOME What’s the Big Deal with Obamacare? In August 2009, many members of the U.S. Congress used their summer recess to return to their home districts and hold town hall-style meetings to discuss President Obama’s proposed changes to the U.S. healthcare system. This was officially known as the Patient Protection and Affordable Care Act (PPACA) or as the Affordable Care Act (ACA), but was more popularly known as Obamacare. The bill’s opponents’ claims ranged from the charge that the changes were unconstitutional and would add $750 billion to the deficit, to extreme claims about the inclusion of things like the implantation of microchips and so-called “death panels” that decide which critically-ill patients receive care and which do not. Why did people react so strongly? After all, the intent of the law is to make healthcare insurance more affordable, to