Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 20, Problem 5PA
Subpart (a):
To determine
The leaky bucket as a constraint to the redistribution of income.
Sub part (b):
To determine
The leaky bucket as a constraint to the redistribution of income.
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Which of the following statements about income inequality is true?
a. A low average household income in a society suggests significant income inequality.
b. A society with progressive income taxes will likely have a very unequal after-tax distribution of income.
c. Low taxes on savings tend to lead to a more equitable distribution of after-tax income.
d. Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes.
e. Low tax rates on wealth will lead to less unequal income distributions.
The table shows the distribution of market income.
Suppose the government redistributes income by taxing
the 60 percent of households with the highest market
incomes 10 percent, then distributing the tax collected
as an equal benefit to the 40 percent with the lowest
market income.
What percentage of total market income is redistributed
to the second 20 percent of households?
What is the income share of the third 20 percent of
households after tax and redistribution?
>>> Answer to 1 decimal place.
earch
The second 20 percent of households receives benefits
equal to percent of total market income.
The third 20 percent of households earns percent of
total income after tax and benefits.
I
point(s)
Households
Lowest 20 percent
Second 20 percent
Third 20 percent
Fourth 20 percent
Highest 20 percent
Market income
(percentage of total
market income)
5
9
20
30
36
Next
4. a. Draw, on the same graph, a Lorenz curve representing
Perfect income equality
Perfect income inequality
i.
ii.
ii.
A typical rich country with a lot of redistribution
A typical middle-income country with little redistribution
b. Consider a country that makes its social support programs (like “food stamps",
insurance, or programs that provide goods like housing or health care to the poor) more
generous, while taxing the rich more in order to fund the programs. How will that economy's
Lorenz curve change?
c. Suppose a country becomes richer, such that over 10 years, every person's income exactly
doubles. What happens to that economy's Lorenz curve?
iv.
unemployment
Chapter 20 Solutions
Principles of Microeconomics (MindTap Course List)
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Similar questions
- "How can Income Inequality in the United States be Reduced?"arrow_forwardWhat do you think about the income trap - is it a myth or reality? How does the middle-income trap affect the equality and poverty of citizens? What can be done to avoid or escape from the trap? Answer correctly and explain within 40 mins will give you positive feedback.arrow_forward1. An economy's Lorenz Curve reveals that an economy's highest income quintile has 65% of the economy's income while the lowest income quintile only has 5% of the economy's income. Solely based on the Lorenz Curve, is this distribution of income fair? Why or why not? 2. To combat income inequality and to generate increased tax revenues to fund expenditures, government officials decide to aggressively increase how progressive income taxes are, so much so that the top income earners are marginally taxed 90% of their income (and while this marginal tax rate may seem oppressive, these top income earners still have more than enough income to satisfy all of their needs and all but the most extravagant of wants - basically, these earners have more than enough money). Argue why this tax policy is a fair approach to fund government expenditures. Why might this tax policy fail to achieve its objectives (tax revenues would actually decline as a result)?arrow_forward
- Which of the following are reasons why high income inequality may be inefficient? Check all that apply. 0 0 High inequality may lead to an overinvestment in higher education at the expense of primary education High inequality limits access to credit for a larger share of the population Redistribution through progressive tax systems creates work disincentives and limits investment. Savings rates for the very wealthy tend to be lower than in the middle class High inequality reflects differences in skills and effort by workersarrow_forwardA. Explain the concepts of the 'Lorenz curve' and 'Gini coefficient'. In answering this question, explain the difference between a flatter Lorenz curve and a bent concave Lorenz curve (i.e., pointing to the right of a diagram). B. List and discuss two policies for reducing poverty,arrow_forwardWhat goods and services would you include in an estimate of the basic necessities for a family of four? How subjective is the concept of poverty line? How subjective is the concept of poverty line?arrow_forward
- The $1.4 billion trick to make us accept income inequality Lotteries take money from the poor and redistribute it unequally. The poor, the uneducated, and minorities play the lottery the most, and it takes a big chunk of their income Source: The Huffington Post, January 12, 2016 If the news clip is correct, how does a lottery change the distribution of income? Draw two Lorenz curves to illustrate your answer. Lotteries result in the distribution of income Draw the Lorenz curve in a country that does not have lotteries. Label it Before Draw the Lorenz curve for the country after the introduction of lotteries. Label it After >>> To reposition the label click on the cross by the label box and dragging it 100 80 60 40- 20 Cumulative percentage of income 100 20 40 60 00 Cumulative percentage of households >>>Draw only the objects specified in the question Garrow_forwardInequality, Social Insurance, and Redistribution-End of Chapter Problem Suppose one of your friends says that they pay taxes for no reason because the governmènt just hands cash out to people who do not truly deserve or need it. Your friend then says, "the system would be more productive if they made sure peopl who receive help are the ones who need it." Consider the tools that the government uses to help ensure aid goes to those in need, a. The social safety net programs fall into one of two categories: wealth or income. progressive or regressive. means-based or social insurance. relative or absolute. b. For aid qualification, people receiving aid must meet low income requirements, while aid is designed to insure everyone against bad outcomes. c. Another tool of the U.S. government is to provide transfers, such as SNAP benefits, instead of cash.arrow_forward
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