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2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER OUTLINE
The Utility Possibilities Frontier The Sources of Household Income Wages and Salaries Income from Property Income from the Government: Transfer Payments The Distribution of Income Income Inequality in the United States The World Distribution of Income Causes of Increased Inequality Poverty The Distribution of Wealth The Redistribution Debate Arguments Against Redistribution Arguments in Favor of Redistribution
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Redistribution Programs and Policies Financing Redistribution Programs: Taxes Expenditure Programs How Effective Are Antipoverty Programs? Government or the Market? A Review 4 of 34
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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If society were made up of two people, I and J, and all the assumptions of perfect competition held, the market system would lead to some point along PP. Every point along PP is efficient; it is impossible to make I better off without making J worse off, and vice versa. Which point is best? Is B better than C?
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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utility possibilities frontier A graphic representation of a two-person world that shows all points at which Is utility can be increased only if Js utility is decreased.
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If the equilibrium wage in the market for unskilled labor is below the legislated minimum wage, the result is likely to be unemployment. The higher wage will attract new entrants to the labor force (quantity supplied will increase from L* to LS), but firms will hire fewer workers (quantity demanded will drop from L* to LD).
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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economic income The amount of money a household can spend during a given period without increasing or decreasing its net assets. Wages, salaries, dividends, interest income, transfer payments, rents, and so on are sources of economic income.
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TABLE 18.1 Distribution of Total Income and Components in the United States, 2006 (Percentages) Households Total Income Labor Income Property Income Transfer Income
Bottom fifth Second fifth Third fifth Fourth fifth Top fifth
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Top 1 percent
Source: Julie-Anne Cronin, US Department of the Treasury, OTA Paper 85, pg 19 and authors calculations.
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money Top 5%
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income The measure of income used by 22.3 17.2 16.4 17.6 21.6 22.1 the Census Bureau. Because money income Source: Bureau of the Census, Current Population Survey,payments and capital excludes noncash transfer Annual Social and Economic Supplements. gains income, it is less inclusive than economic income.
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Source: Bureau of the Census, Current Population Survey, Annual Social and Economic Supplements.
FIGURE 18.3 Lorenz Curve for the United States, 2006 The Lorenz curve is the most common way of presenting income distribution graphically. The larger the shaded area, the more unequal the distribution. If the distribution were equal, the Lorenz curve would be the 45-degree line 0A. 16 of 34
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
Source: U.S. Census Bureau, www.census.gov, Historical Income Tables, Table H3, 2006.
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Source: World Bank, World Development Report 2008, Key development indicators Table 1.
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Although it is difficult to define precisely, the word poverty is one that we all understand intuitively to some degree.
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There will always be some Americans who are better off than others. But it need not follow that the poor are always with us....It is high time to redouble and to concentrate our efforts to eliminate poverty....We know what must be done and this nation of abundance can surely afford to do it.
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2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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The program is quite complex but essentially allows lower-income families with children a credit equal to a percentage of all wage and salary income against their income taxes.
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2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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In the United States, one of the ways in which people try to help the poor is through charity. Almost 90 percent of the population contributes each year to some charitable organization. Recent work in experimental economics has explored the factors that lead people to make these contributions.
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compensating differentials economic income equity food stamps Gini coefficient human capital labor theory of value Lorenz curve Medicaid and Medicare minimum wage
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money income poverty line property income public assistance, or welfare Rawlsian justice Social Security system transfer payments unemployment compensation utilitarian justice utility possibilities frontier
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