195 Ch 5

Question 1

Poverty Thresholds

Answer 1

Used to distinguish for statistical purposes those who live in poverty from those who do not

Question 2

Poverty rate

Answer 2

the fraction of the american population living at or below the poverty line

Question 3

Extreme Poverty

Answer 3

Persons or households living at half the poverty level or below

Question 4

Criticisms of the poverty measure

Answer 4

1) Income figures do not account for government anti-poverty policies (food stamps, earned income tx credits)
2)poverty thresholds are updated for inflation but do not change w/ standard of living changes (Middle class today live better than middle class 50 years ago)
3) Opposite of 2, that families below official poverty line live better than those 50 years ago.
(idk about this one)

Question 5

Indicators

Answer 5

tools used to quantify and evaluate outcomes or performance

Question 6

Indexes

Answer 6

a combination of indicators

Human Development index [HDI] measures human well being and uses formula to combine them into a single number

Question 7

Veil of ignorance

Answer 7

Optional decisions regarding social welfare best made under the idea of the decision-makers having no idea what role they would be assigned to in the society they were designing.

Question 8

Efficiency

Answer 8

degree to which resources are used to generate the most productive outcome

Question 9

Pareto-Efficient

Answer 9

When it is not possible to make any individual better off without making another individual worse off.

Question 10

Deadweight Loss

Answer 10

a measure of inefficiency, occurs when loss of welfare imposed on one party exceeds the gain in welfare afforded to another party; a more efficient allocation of resources could make at least one person better off without making anyone worse off.

Question 11

Equity

Answer 11

• Measure of a policy’s fairness (elusive concept).

- An equal division of resources and responsibilities

Question 12

Horizontal equity

Answer 12

measure of the degree to which similar persons and situations are treated equally.

Question 13

Vertical Equity

Answer 13

A measure of the degree to which the rich pay more than the poor. Poor receive greater social benefits than the wealthy.

Question 14

Intergenerational equity

Answer 14

fairness in the way that policies treat different generations.

Question 15

Efficiency vrs Equity analogy

Answer 15

• Efficiency is about using resoiurces in a way that creates the largest possible case, regaurdess of how the slices are cut and allocated.
• Equity is about dividing the pieces in a way society deems fair.
• Pie grows under efficiency but ignores fairness. Pie becomes more fair under equity, but ignores growth.

Question 16

Initial endowment

Answer 16

wat individuals originally have in relation to resources/capabilities

Question 17

2 incentive problems from equity that diminish capacity

Answer 17

1) The beneficiaries of such redistribution have less incentive to work hard on their own
2) Wealthier individuals who are taxed to pay for such benefits have less incentive to create such wealth in first place.

Question 18

Absolute Poverty

Answer 18

Degree to which a person’s basic needs are being met

Question 19

Relative Poverty

Answer 19

Individuals consumption relative to other members of society