Econ 101: Chapter 13

Question 1

Income

Answer 1

the money you receive in a period of time, such as a year.

Question 2

Income is distributed…

Answer 2

unequally

Question 3

quintile

Answer 3

data broken down into five equal sized groups.

Question 4

income inequality is…

Answer 4

rising.

Question 5

10th percentile (incomes)

Answer 5

only 10% of people have make a smaller income.

Question 6

Median (income)

Answer 6

the middle income, when all incomes are arranged from smallest to largest (aka 50th percentile).

Question 7

90th percentile (incomes)

Answer 7

where only 10% people have a higher income.

Question 8

Wealth

Answer 8

refers to all the assets that you currently have.

Question 9

Income vs. Wealth

Answer 9

Income is a flow, measured over time.

Wealth is a stock, measured at one point in time.

Question 10

Wealth is more…

Answer 10

unequally distributed compared to income.

Question 11

Permanent income

Answer 11

your average lifetime income.

Question 12

Permanent income…

Answer 12

evens out your temporary ups and downs reflected in annual income.

Question 13

There is less inequality in spending than…

Answer 13

income.

Higher income individuals tend to save more.

People with temporarily high incomes tend to save, while people with temporarily low incomes tend to dip into their savings.

Question 14

Inequality of outcomes (examples):

Answer 14

inequality in current/permanent income, wealth, and consumption.

Question 15

Intergenerational mobility

Answer 15

the extent to which the economic status of children is independent of the economic status of their parents.

Question 16

Canada - intergenerational mobility

Answer 16

1/4 of your parents economic advantage/disadvantage will be transmitted to you.

Question 17

Inequality of opportunity (example:

Answer 17

intergenerational mobility.

Question 18

Process that economicst use to learn more about an area.

Answer 18

1. examine current levels of _____
2. examine who is affected by_____
3. examine how ____ has changed over time
4. examine ____ across countries
5. examine alternative ways of measuring _____

Question 19

Poverty line

Answer 19

an income level, below which a family is defined to be in poverty.

Question 20

Market basket measure

Answer 20

calculates the cost of a basket of goods considered necessary to maintain a modest + basic standard of living for a 4 person family.

Question 21

Poverty rate

Answer 21

the percentage of people whose family is below the poverty line.

Question 22

absolute poverty

Answer 22

the measure of the adequacy of resources relative to an absolute standard of living.

Question 23

relative poverty

Answer 23

a measure that compares poverty relative to the material living standards of your contemporary society.

Question 24

The Canadian poverty line is a ____ measure.

Answer 24

both a relative and absolute measure.

Market basket is a absolute measure, but since it is updated every few years, it is relative.

Question 25

Poverty spells are…

Answer 25

fairly common, and most people bounce back.

There is an issue when people remain in poverty for long periods of time.

Question 26

Transfers

Answer 26

the cash, goods, and services the government provides some people.

Question 27

Social safety net

Answer 27

the cash assistance, goods, and services provided by the government to better those at the bottom of the income distribution.

Question 28

social insurance

Answer 28

government provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings.

Question 29

Progressive taxes

Answer 29

a tax where those with more income tend to pay a higher share of their income in taxes.

Question 30

Minimal support

Answer 30

provide very little money, but are enough to raise low income families above the poverty line.

Question 31

Means-tested

Answer 31

eligibility is based on income and sometimes wealth.

Question 32

In-kind transfers

Answer 32

provides specific goods like dental care, prescription drug coverage, access to housing, child care, etc.

Question 33

Social insurance is provided by…

Answer 33

government, and paid for through taxes.

Question 34

Social insurance is not…

Answer 34

means tested. Everybody is covered, regardless of how much money they make.

Question 35

Benefits from social insurance depends on…

Answer 35

what you have contributed into it.

Question 36

Marriage is like..

Answer 36

insurance.

Question 37

Income taxes

Answer 37

taxes collected on all income, regardless of its source.

Question 38

tax breaks are…

Answer 38

special exemptions that reduce how much of your income counts as taxable income.

Question 39

Regressive tax

Answer 39

a tax where those with less income tend to pay a higher share of their income on the tax.

Question 40

Utility

Answer 40

your level of well being

Question 41

marginal utility

Answer 41

the additional utility you get from one more dollar.

Question 42

diminishing marginal utility

Answer 42

each additional dollar yields a smaller boost to your utility than the previous dollar.

Question 43

redistribution can…

Answer 43

increase total well being (utility).

Question 44

utilitarianism

Answer 44

the political philosophy that the government should try to maximize total utility in society.

Question 45

the Leaky Bucket

Answer 45

when redistributing money from the rich to the poor, some of the money gets lost along the way.

Question 46

Causes of the Leaky Bucket:

Answer 46

1. Administrative costs.
2. Taxes and means-tested program reduce the incentive to work.
3. higher taxes mean more tax avoidance, tax evasion, and fraud.

Question 47

effective marginal tax rate

Answer 47

the amount of each extra dollar you earn that you lose to higher taxes and lower government benefits.

• poverty trap

Question 48

Tax avoidance

Answer 48

doing things explicitly to try to reduce the taxes you owe by taking advantage of loopholes in the tax system.

Question 49

Tax evasion

Answer 49

not reporting all your income.

Question 50

equality efficiency trade off

Answer 50

more equal incomes come at the cost of lower average incomes.

Question 51

equality of outcomes

Answer 51

emphasizes that more equal outcomes are fairer.

Question 52

equality of opportunity

Answer 52

emphasizes that a level playing field is necessary for fairness.

Question 53

Fairness by process

Answer 53

requires that the process through which something is achieved was fair for everyone involved.

Question 54

fairness by what you deserve

Answer 54

based on what you contribute to society.

Question 55

when more people think that luck determines income…

Answer 55

the country tends to spend more (social spending) and redistribute.

Question 56

Veil of ignorance

Answer 56

a philosophical concept that encourages thinking about what kind of society or redistribution one would choose without knowing their own future circumstances.

Question 57

Sociologists also consider…

Answer 57

class and group strucutres, determining that “power” may reside in particular groups, causing income inequality.