Unit 19

Question 1

What’s this unit about?

Answer 1

Looking at economic inequality

Question 2

Market income is the sum of:

Answer 2

• all income received as earnings
• All income received from businesses owned by the household or from investments

Question 3

Disposable income is

Answer 3

income family can spend:
- after taxes
- After transfer payment

Question 4

Final income is

Answer 4

• after taxes on good and services counted
• Add in total value of public services used

Question 5

Greta divergence in unit 1 occurred because

Answer 5

the kink in the hockey stick for per capita income has varied in which point in time it has hit countries. The result of the uneven timing of the capitalist revolution around the world was a widening of inequalities among the people of the world.

Question 6

Accidents of birth impact

Answer 6

Much of inequality can be down to accidents of birth: race, sex, nation, parents, etc.

Question 7

Categorical inequality

Answer 7

inequality between social groups - race, gender, nationality, caste, religion, etc.

Question 8

Intergenerational elasticity

Answer 8

when comparing parents and grown offspring, % difference in 2nd gen’s status associated with a 1% difference in the adult generations status

Question 9

Intergenerational elasticity example

Answer 9

• Elasticity of 0.5, means if father is 10% richer, child will be 5% richer than the other child
• In a society with high intergenerational elasticity, intergenerational mobility is low
• A measure of intergenerational transmission of economic differences.

Question 10

When is inequality considered unfair?

Answer 10

• People differ on views on redistribution policies depending on their own wealth levels, believes on why poor are poor and vice.
• Procedural theories, which are ideas of fairness based on how the inequality came to be, focus not on how poor or rich someone is but why - many think unfair if income depend on accidents of birth but not if due to harder working people

Question 11

Endowments =

Answer 11

facts about an individual which may affect their income
- can help understand reasons behind income inequality.
- assets, accidents of birth, etc

Question 12

Principal agent relationships in labour markets:

Answer 12

• Consider an economy with wealthy individuals and employees
• Credit market excluded, those without wealth or insufficient wealth are exclude from credit market.
• Wealthy individuals and successful borrowers can purchase capital goods so as to become employers
• Employers hire employees on the labour market

Question 13

When looking at the labour market, consider how will changes to the labour market affect:

Answer 13

• low income
• Middle income
• High income

Question 14

Governments influence degree of inequality in economy in two ways:

Answer 14

• Redistribution: by taxes and transfers that result in distribution of disposable income that différents from distribution of market income
• Predistribution: by affecting endowments people have, leading to a change in the inequality in market income

Question 15

Cross sectional inequality

Answer 15

How close are we to perfect inequality across all adults in society

Question 16

Redistribution/pre

Answer 16

• redistribute tax revenue to reduce inequality
• predistribution is government policies to make sure market income is similar so redistribution isn’t even as necessary, like investment into education of poorer areas.
• predistribution is to affect endowments people have

Question 17

Gini coefficient

Answer 17

A/A+B, from a mathematical standpoint, if the size of area A increases, then G rises, so closer to perfect inequality.

Question 18

If you dont care about intergenerational inequality

Answer 18

Indifference curves are horizontal

If udc about cross sectional, only intergenerational inequality - indifference curves are vertical.

Question 19

Why do curved indifference for inequality not rly make sense

Answer 19

For them to get a lower level of intergenerational inequality which is already low, huge fall in cross sectional inequality - doesnt make sense.

Now sad face curve makes sense.

Question 20

Feasible sets

Answer 20

• 45 degree line - set of incomes which are same - complete equality
• red curve are feasible incomes of poor and rich - MRT
• F is the maximum feasible income of rich, top
• E is equality point maximised, not PE like D as can move up
• point R - Rawl’s Ideal, furthest to the right, maximising income of poor - is PE
• point B - MRS = MRT point, highest IC of inequality averse citizen.
• point D - minimum feasible income of poor, top left
• A - max average income slope = -1, maximised expected income as one more unit for poor is one more unit lost for poor, so equal opportunity cost.