FINAL EXAM Flashcards
Why has income inequality risen?
1) Older Population.
® The population is getting older-more income variation with the elderly.
® Older US citizens are less likely to be poor when compared with younger citizens.
2) Transparency.
® Actual income of wealthier Americans hasn’t changed much, but more is reported.
3) The Superstar Effect.
® Improved communication technology means that more companies can hire the “best” in the field and the best can reach a larger market.
4) Increased Education
® incomes of more highly educated people exhibit more variation.
5) War on Drugs
Income Mobility
® Income Mobility – the ability to move up or down in income level.
® Absolute mobility – the movement of your income level as compared to your parents (changes in society’s standard of living).
Relative mobility – moving up or down in income level as compared to other people.
Poverty Defined and Measured
Poverty Threshold - The current poverty index in the U.S. is an absolute measure based on the concept of minimum needs. 2020 Poverty Threshold for a family of four is $26,200. This is money necessary to acquire minimum necessary food, shelter, clothing, and utilities.
Noncash (in-kind) transfer – programs that distribute other kinds of aid
□ Food stamps and WIC (Women, Infants, and Children)
® vouchers for food, baby formula, and diapers, for low-income women with children
□ Housing vouchers - “Section 8” - reduced rent for families/individuals with low incomes
□ Medicaid - health insurance for people with low incomes, the medically indigent, and certain expensive illnesses
□ Head Start -free daycare and preschool for low-income families with children under the age of 5
School Lunch - any low-income family is eligible for free school breakfasts and lunches for school-aged children
Pure Market
® Capitalism.
® Free Markets.
® Private property rights, private resource ownership.
® Laissez-Faire role for government, no intervention except as referee in disputes.
Self-Interest and Profit motivates.
Mixed
Mixed of Pure Market and Pure Command
Pure Command
® Socialism.
® Communism.
® Communal resource ownership, common property rights.
® Significant government intervention and control.
Goodwill toward community motivates.
What to produce?
– Market – what people are willing and able to buy.
– Consumer Sovereignty: consumer preferences determine the production of goods and services.
Command
– What government deems necessary.
How to produce?
Market – Private Enterprise. – Economize. – Efficiency. – Profit maximize. – Hard budget constraint. } Command – Determined by a central planner. – State-owned enterprise. Soft budget constraint.
For Whom to Produce?
} Market
– Based on ability, effort, inheritance.
} Command
– Equal distribution.
◊ Pros/Cons of Market Economy
} Pros:
– Consumers have choices and buy what they want.
– Less wastage.
– Economic pie grows.
} Cons:
– Producers ignore other costs.
– Equity widens.
w Why has there been movement in both directions on the economic system spectrum?
w Equity (fairness) – normative.
w Efficiency – positive.
Milton Friedman Video
□ what ways and what policies does government affect the economy and what policies, you know, kind of, promote a more free economy than others.
® So we can think of size of government expenditures taxes enterprises, but also where those expenditure taxes and government enterprises are located.
The legal structure and security of property rights. So for instance, if you have a country where eminent domain says basically a government can take away your property.
5 Inequality Myths Video
1) profit and plunder are the same thing.
® Profit, someone who provide services to society and get paid for their services
◊ Ex: Steve Jobs because provide services to society like iPhone and people pay him for it
® Plunder, someone who take from society without provide services
◊ Ex: Adm because They take from society like convince the government to hand over the people’s money for nothing in return for those people and without provide services
} What is an example of inequality of outcome and inequality of opportunity that we see in our society?
– inequality of outcome in the work income were people get different pay for the same job,
– inequality of opportunity African children who do not have opportunity to improve their life 2) One can be for equality ® The 3 kids each 1 stands on a box they have equality of opportunity but Because they are different Heights, they have inequality of outcome because one can see the game and the other can not. ◊ These 3 kids face equality of opportunity but inequality of outcome. ® Of the three children, one is standing on two boxes, another on one, and the last is standing on nothing, they have equality of outcome but inequality of opportunity ◊ These 3 kids face equality of outcome but inequality of opportunity. – So you cannot be for equality w either equality of opportunity or equality of outcome you can't have both. 3) We understand what inequality means ® Inequality doesn't measure what we think ◊ inequality divers our attention from the real problem being poverty ◊ people can be unequal persistently and yet perfectly equal if we look at them over time ◊ people can be unequal persistently and yet perfectly equal if we look at them over time, inequality completely ignore half of the economy by focusing on dollars, not goods and services ◊ Inequality is not poverty ◊ equality isn't necessarily good anyway 4) The middle class is disappearing ® Fact: it is, it joining the upper class 5) People are becoming worst off ® Nope, it is the opposite
Globalization
□ Globalization: The integration of national economies into an international economy as a result of lower trade barriers and reduced transportation and communication costs.
® Boon to consumers: lowers prices, provides variety, increase to quality
® Loathed by producers
◊ Competitors don’t want competition!
◊ Drives down prices, spurs innovation and R&D investment
◊ Producers lobby for tariffs (taxes on imported goods), quota (limits quantity of imports) or other policies to reduce competition from foreign firms
} Consumers pay for this lobbying!
◊ Would it be cheaper to give workers cash instead of imposing restrictions on imports?
Opportunity Cost and the PPF
Opportunity cost of production on the PPF: If an economy is producing efficiently on their PPF, to produce more of one good, they must give up some quantity of the other good they produce. This is their opportunity cost.
