Econ 101: Chapter 13 Flashcards
Income
the money you receive in a period of time, such as a year.
Income is distributed…
unequally
quintile
data broken down into five equal sized groups.
income inequality is…
rising.
10th percentile (incomes)
only 10% of people have make a smaller income.
Median (income)
the middle income, when all incomes are arranged from smallest to largest (aka 50th percentile).
90th percentile (incomes)
where only 10% people have a higher income.
Wealth
refers to all the assets that you currently have.
Income vs. Wealth
Income is a flow, measured over time.
Wealth is a stock, measured at one point in time.
Wealth is more…
unequally distributed compared to income.
Permanent income
your average lifetime income.
Permanent income…
evens out your temporary ups and downs reflected in annual income.
There is less inequality in spending than…
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.
Inequality of outcomes (examples):
inequality in current/permanent income, wealth, and consumption.
Intergenerational mobility
the extent to which the economic status of children is independent of the economic status of their parents.
Canada - intergenerational mobility
1/4 of your parents economic advantage/disadvantage will be transmitted to you.
Inequality of opportunity (example:
intergenerational mobility.
Process that economicst use to learn more about an area.
- examine current levels of _____
- examine who is affected by_____
- examine how ____ has changed over time
- examine ____ across countries
- examine alternative ways of measuring _____
Poverty line
an income level, below which a family is defined to be in poverty.
Market basket measure
calculates the cost of a basket of goods considered necessary to maintain a modest + basic standard of living for a 4 person family.
Poverty rate
the percentage of people whose family is below the poverty line.
absolute poverty
the measure of the adequacy of resources relative to an absolute standard of living.
relative poverty
a measure that compares poverty relative to the material living standards of your contemporary society.
The Canadian poverty line is a ____ measure.
both a relative and absolute measure.
Market basket is a absolute measure, but since it is updated every few years, it is relative.
Poverty spells are…
fairly common, and most people bounce back.
There is an issue when people remain in poverty for long periods of time.
Transfers
the cash, goods, and services the government provides some people.
Social safety net
the cash assistance, goods, and services provided by the government to better those at the bottom of the income distribution.
social insurance
government provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings.
Progressive taxes
a tax where those with more income tend to pay a higher share of their income in taxes.
Minimal support
provide very little money, but are enough to raise low income families above the poverty line.
Means-tested
eligibility is based on income and sometimes wealth.
In-kind transfers
provides specific goods like dental care, prescription drug coverage, access to housing, child care, etc.
Social insurance is provided by…
government, and paid for through taxes.
Social insurance is not…
means tested. Everybody is covered, regardless of how much money they make.
Benefits from social insurance depends on…
what you have contributed into it.
Marriage is like..
insurance.
Income taxes
taxes collected on all income, regardless of its source.
tax breaks are…
special exemptions that reduce how much of your income counts as taxable income.
Regressive tax
a tax where those with less income tend to pay a higher share of their income on the tax.
Utility
your level of well being
marginal utility
the additional utility you get from one more dollar.
diminishing marginal utility
each additional dollar yields a smaller boost to your utility than the previous dollar.
redistribution can…
increase total well being (utility).
utilitarianism
the political philosophy that the government should try to maximize total utility in society.
the Leaky Bucket
when redistributing money from the rich to the poor, some of the money gets lost along the way.
Causes of the Leaky Bucket:
- Administrative costs.
- Taxes and means-tested program reduce the incentive to work.
- higher taxes mean more tax avoidance, tax evasion, and fraud.
effective marginal tax rate
the amount of each extra dollar you earn that you lose to higher taxes and lower government benefits.
- poverty trap
Tax avoidance
doing things explicitly to try to reduce the taxes you owe by taking advantage of loopholes in the tax system.
Tax evasion
not reporting all your income.
equality efficiency trade off
more equal incomes come at the cost of lower average incomes.
equality of outcomes
emphasizes that more equal outcomes are fairer.
equality of opportunity
emphasizes that a level playing field is necessary for fairness.
Fairness by process
requires that the process through which something is achieved was fair for everyone involved.
fairness by what you deserve
based on what you contribute to society.
when more people think that luck determines income…
the country tends to spend more (social spending) and redistribute.
Veil of ignorance
a philosophical concept that encourages thinking about what kind of society or redistribution one would choose without knowing their own future circumstances.
Sociologists also consider…
class and group strucutres, determining that “power” may reside in particular groups, causing income inequality.
