Week 9: imperfect information Flashcards
Interpreting the Lorenz Curve
- a distribution measure useful to compare it with curves for two hypothetical economies:
- economy of perfect quality
- economy of perfect inequality
Economy of perfect quality
where all have identical incomes, the Lorenz curve would be a 45-degree line emanating from the origin
Economy of perfect inequality
where one household receives all of the economy’s income, the Lorenz curve would follow the horizontal and vertical axes of the graph
Gini Coefficient
- provides a single numerical measure of income
distribution - defined as the area between a Lorenz curve and the 45-degree line of perfect equality, divided by the entire triangular area under the 45-degree line
- the coefficient varies from 0 to 1, with 0 representing perfect equality and 1 representing perfect inequality
7 Wage Determinants
- labour productivity
- education
- experience
- job conditions
- regional disparities
- market power
- discrimination
Labor productivity
real output per labour hour
Poverty Line
- the income level below which a household is classified as poor
- market basket measure (MBM)
Market basket measure (MBM)
asserts that a family lives in poverty if it does not have enough income to purchase a specific basket of goods and services in its community
Industrial unions
all workers in a certain industry
ex. automobiles
Craft unions
workers in a particular occupation and restrict who can be members
ex. bakers
Job Discrimination
- relates to hiring, wage, and promotion decisions based on criteria other than a workers’ credentials or performance
- can be direct, in which case employees are paid different amounts for substantially the same work
- can also be indirect, involving a discriminatory division of jobs
Wealth
money or valuable possession accumulated by a person during the course of his life
Income
the money received or earned on a continuous basis, as a return for work or investments
