Welfare Economics and Distribution of Wealth

Question 1

Endowment Effect

Answer 1

The tendency of people to be unwilling to sell something they already own ever if they are offered a price greater then they would be willing to buy it at in the first place

Question 2

Framing

Answer 2

Presenting choices in different ways (truthfully), affecting peoples choice

Question 3

3 Kinds of Irrational Choices people make

Answer 3

1. Ignoring non-monetary opportunity costs- explains Endowment effect
2. Failure to ignore sunk costs
3. Unrealistic expectations of future behaviour

Question 4

Nudge Policy

Answer 4

A policy that structures choices so to change the choices that people make. Not taxes

Question 5

Indifference Curve

Answer 5

A line showing combinations of goods that give the consumer the same level of utility. It is sloped, because consumers get more happiness from variety

Question 6

Lorenz Curve

Answer 6

A curve constructed by ordering households by their income lowest to highest.
For each percentile cumulative income of all percentiles before it is calculated as a % of the entire economies income.
So each value represents total income of everyone under each percentile

Question 7

Gini Coefficient

Answer 7

A measure of inequality where 1 is perfectly in equal and 0 is perfectly equal.
Can be calculated by A/(A+B) with A being the area between Lorenz Curve and perfectly equal Lorenz curve .

Question 8

Causes of Inequality

Answer 8

1. Closely held capital resources
2. Poorly organised labor resources (No unions)
3. Lack if socio-economic mobility
4. Disadvantages Minority Groups
5. Female Labor participation

Question 9

Human Development Index

Answer 9

A measure that uses a combination of economic welfare, education, life expectancy and inequality to gain a aggregate value so you can compare total welfare of societies