Chapter 18 - Income Distribution and Poverty

Question 1

equity

Answer 1

Fairness.

Question 2

human capital

Answer 2

The stock of knowledge, skills, and talents that people possess; it can be inborn or acquired through education and training.

Question 3

compensating differentials

Answer 3

Differences in wages that result from differences in working conditions. Risky jobs usually pay higher wages; highly desirable jobs usually pay lower wages.

Question 4

minimum wage

Answer 4

The lowest wage that firms are permitted to pay workers.

Question 5

property income

Answer 5

Income from the ownership of real property and financial holdings. It takes the form of profits, interest, dividends, and rents.

Question 6

transfer payments

Answer 6

Payments by government to people who do not supply goods or services in exchange.

Question 7

economic income

Answer 7

The amount of money a household can spend during a given period without increasing or decreasing its net assets. Wages, salaries, dividends, interest income, transfer payments, rents, and so on are sources of economic income.

Question 8

money income

Answer 8

The measure of income used by the Census
Bureau. Because money income excludes noncash transfer payments and capital gains income, it is less inclusive than economic income.

Question 9

Lorenz curve

Answer 9

A widely used graph of the distribution of income, with cumulative percentage of households plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis.

Question 10

Gini coefficient

Answer 10

A commonly used measure of the degree of inequality of income derived from a Lorenz curve. It can range from 0 to a maximum of 1.

Question 11

poverty line

Answer 11

The officially established income level that
distinguishes the poor from the nonpoor. It is set at three times the cost of the Department of Agriculture’s minimum food budget.

Question 12

utility possibilities frontier

Answer 12

A graphic representation of a two-person world that shows all points at which I’s utility can be increased only if J’s utility is decreased.

Question 13

utilitarian justice

Answer 13

The idea that “a dollar in the hand of a rich person is worth less than a dollar in the hand of a poor person.” If the marginal utility of income declines with income, transferring income from the rich to the poor will increase total utility.

Question 14

Rawlsian justice

Answer 14

A theory of distributional justice that concludes that the social contract emerging from the “original position” would call for an income distribution that would maximize the well-being of the worst-off member of society.

Question 15

labor theory of value

Answer 15

Stated most simply, the theory that the value of a commodity depends only on the amount of labor required to produce it.

Question 16

Social Security system

Answer 16

The federal system of social insurance programs. It includes three separate programs that are financed through separate trust funds: the Old Age and Survivors Insurance (OASI) program, the Disability Insurance (DI) program, and the Health Insurance (HI), or Medicare program.

Question 17

public assistance, or welfare

Answer 17

Government transfer programs that provide cash benefits to: (1) families with dependent children whose incomes and assets fall below a very low level and (2) the very poor regardless of whether they have children.

Question 18

unemployment compensation

Answer 18

A state government transfer program that pays cash benefits for a certain period of time to laid-off workers who have worked for a specified period of time for a covered employer.

Question 19

Medicaid and Medicare

Answer 19

In-kind government transfer programs that provide health and hospitalization benefits: Medicare to the aged and their survivors and to certain of the disabled, regardless of income, and Medicaid to people with low incomes.

Question 20

food stamps

Answer 20

Vouchers that have a face value greater than their cost and that can be used to purchase food at grocery stores.