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Econ Higher > Income Inequality > Flashcards

Income Inequality Flashcards

1
Q

What are the sources of income inequality?

A
  1. Non competing groups
  2. Occupational differences
  3. Human capital investment (education)
  4. Discrimination
  5. Inheritance
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2
Q

How are non competing groups a source of income inequality?

A

Mental, physical ability is not the same for everyone.

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3
Q

How are occupational differences a source of income inequality?

A

The environment of a job can be more risky even if the same skill set is required.

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4
Q

What is it called when you pay someone in a more dangerous job more for the risk they are putting themselves in?

A

Compensating wage difference (CWD)

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5
Q

How is human capital investment a source of income inequality?

A

You have to spend time and money investing in yourself. Not all of us are willing to take these costs.

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6
Q

How is discrimination a source of income inequality?

A

People are blocked from entering certain jobs or paid less for the same job because of race, sexual orientation or gender.

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7
Q

How is inheritance a source of income inequality?

A

One incentive to wealth is to pass it down to your children, making them more wealthy with the means to get richer.

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8
Q

What is screening?

A

The requirement that potential employees possess certain credentials, such as a high school diploma.

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9
Q

How does screening affect inequality?

A

It adds to it.

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10
Q

Why does screening add to inequality?

A

It is selective of employees not necessarily because they are more productive but because they have more credentials that qualify for jobs that offer higher lifetime earnings.

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11
Q

How do we measure inequality?

A

Lorenz curve or Gini coefficient

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12
Q

What is the Lorenz curve?

A

A graphical measure of inequality.

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13
Q

What angle is the perfect inequality line on the Lorenz curve?

A

45 degrees

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14
Q

What does the perfect inequality line look like on the Lorenz curve?

A

Vertical on the right

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15
Q

What does perfect inequality mean?

A

One family owns all

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16
Q

What does the lorenz curve show?

A

Where we are

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17
Q

What is our goal?

A

To move the lorenz curve toward the perfect equality line

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18
Q

Why are we going backwards?

A
  1. Technology
  2. Free trade agreements signed
  3. Abusing the system
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19
Q

How does technology set us back equality wise?

A

Th educated can make more money whilst the unskilled make the same or lose their job so the inequality increases.

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20
Q

How does free trade agreements being signed set us back equality wise?

A

This benefits the educated because demand for them will increase. The unskilled workers suffer because demand for them is taken elsewhere.

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21
Q

How does abusing the system set us back equality wise?

A

More people have children to get benefits and those children end up being worse off.

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22
Q

What is the Gini coefficient?

A

A numerical measure of equality. It is the area between the Lorenz curve and the 45 degree line divided by the entire area under the 45 degree line.

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23
Q

What is the Gini coefficient always in between numerically?

A

0 and 1

24
Q

How does the government redistribute income?

A
  1. Income/direct tax
  2. income maintenance programme
  3. Subsidised services
25
Q

What are the three types of income tax?

A
  1. Progressive
  2. Regressive
  3. Proportional
26
Q

What is progressive tax?

A

Rich pay more (increases with income)

27
Q

What is regressive tax?

A

Poor pay more than rich

28
Q

What is regressive tax?

A

Tax rate stays the same

29
Q

What is the marginal tax rate?

A

The extra or additional tax you have to pay when you earn 1 extra dollar.

30
Q

How do you calculate marginal tax rate?

A

Change in tax over change in income

31
Q

What is average tax rate?

A

How much tax you pay on average

32
Q

How do you calculate average tax rate?

A

T/y

33
Q

What type of tax is sales tax?

A

Regressive

34
Q

Advantages of progressive tax?

A

Redistributes income

35
Q

Disadvantages of progressive tax?

A

Less incentive

36
Q

Advantages of regressive tax?

A

Does not redistribute income

37
Q

Disadvantages of regressive tax?

A

Adds incentive

38
Q

Disadvantages of proportional tax?

A

The burden of tax falls heavily on the poor.

39
Q

Advantages of proportional tax?

A

Economic status of everyone stays the same proportionally.
Easy to calculate.
No affect on incentives.

40
Q

What is an income maintenance programme?

A

A government program that provides financial assistance to those in need so that they can maintain a certain income level.

41
Q

What is the objective of these methods of redistribution of income?

A

To bring the lorenz curve as close to the 45 degree line as possible.

42
Q

With these redistribution methods there is a trade off between?

A

Efficiency and fairness.

43
Q

What are the three ideas regarding this trade off?

A
  1. Natural Law
  2. Utilitarian Equality Caw
  3. Rawlson
44
Q

What is the natural law idea also called?

A

MP, leakly bucket

45
Q

What does the natural law idea believe in?

A

Inefficiency

46
Q

Explain the leaky bucket theory?

A

If you move water from one bucket to a leaky bucket, you will lose water.

47
Q

In terms of redistributing income what do you lose? (leaky bucket theory)

A

In the case of redistributing income you lose productivity, money, firms etc.

48
Q

What is the utilitarian equality case?

A

Society as a whole will be better off

The MU of rich will go down and MU of poor will go up

49
Q

What is the Rawlsian theory?

A

People will ask for efficiency or fairness because in advance they know what the outcome will be for them
If they were operating behind a veil of ignorance they would chose fairness, just to be on the safe side.

50
Q

What are the two kinds of poverty?

A
  1. Absolute standard

2. Relative poverty

51
Q

What is absolute standard poverty?

A

When you cannot afford the necessities

food, shelter, clothing, education

52
Q

What is relative poverty?

A

When your income is below average in the neighbourhood/country you’re in.

53
Q

How can you solve poverty?

A
  1. Economic growth

2. Equal distribution of income (tax)

54
Q

What is income?

A

flow of economic payments in the form of wages, rent, interest and profit over a period of time

55
Q

What is wealth?

A

Stock of economic profit, owned and measured at a point of time: dependent on income.

Econ Higher (23 decks)

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