Econ II Final Flashcards
Session 7
What is poverty?
Living under a certain income threshold.
- Commonly expressed in absolute terms (eg. $1.9/day wage World Bank)
- Poverty headcount ratio: share of people below poverty line.
Session 7
What is inequality?
Relative measure of the distribution of income.
Session 7
Lorenz Curve
Plots the income of individuals in an ascendant way, similar to a cumulative distribution function.
Equal distribution - straight line
Unequal distribution - curved line
Session 7
Gini Coefficient
Measures the degree of inequality within a population in a specific country.
Equality expressed as G = 0
Inequality expressed as G = 1
Session 7
Gini Formula
G = a / (a + b)
How far the Lorenz curve falls from the ‘line of equality’
Session 7
Why has inequality increased since 1970s?
Technological change: technology can be used to make processes more efficient and replace low-skilled labor.
Globalization: trade/foreign investment make low-skill labor compete globally, depressing OECD-low skilled wages.
Session 7
Where is inequality reflected other than income?
In people’s outcomes (eg. health, education, lifetime mobility), but it is harder to estimate.
Session 8
What is social welfare?
It refers to the aggregated well-being of a group of people, reflected in utility.
Cardinal - Comparable and measurable individually
Ordinal - Observable by preferences (in decisions)
Session 8
Arrow’s Paradox
Social welfare is the aggregation of individual preferences.
- Cardinal utility is necessary to construct a social welfare function.
- Ordinal utility (preference rankings) is insufficient.
Session 8
GDP vs. Wealth
GDP (flow) is an estimate to measure economic acvitiy.
Wealth (stock) refers to produced, natural or intangible capital.
Session 8
Genuine Wealth
The sum of physical, human and natural capital.
𝜔 = 𝐾 + 𝐻 + 𝑅
Session 8
Genuine Savings
The net change of wealth w.
∆𝜔 = ∆𝐾 + ∆𝐻 + ∆𝑅
Session 8
HDI
An index to quantify human development (welfare), reflected in:
- GNI, schooling, life expectancy
- Washington Consensus vs. SDGs
Session 8
Easterlin Paradox
Income is not correlated with happiness in time series data.
Happiness stops increasing once a certain income level is crossed (Kahneman).
Some evidence exists for relative income, can adapt to changes at the individual level.
Session 9
Greenhouse Effect
It is a natural mechanism that warms up the planet, but that is exacervated by human activity (eg. energy emissions leading to more warmth absorbtion).
