Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 8DQ
To determine
The trade-off between equality and efficiency.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Shen, who is currently unemployed, is a participant in four welfare programs that offer daily benefits of $10 each to people with no
earned income. Each program then curtails its benefits by 50 cents for every dollar of income a recipient earns. Shen's identical twin
brother, Sean, is enrolled in an experimental negative income tax program that gives him $40/day in benefits and then taxes him at the
rate of 50 percent on each dollar of earned income. Now suppose Shen is offered a job that pays $4/hr, the same wage his brother
earns.
a. Draw the budget constraint for each twin.
Instructions: To earn full credit for this graph you must plot all required points for each curve.
1. Use the line tool (Shen's budget constraint, plot 3 points) to draw the Shen's budget constraint.
2. Use the line tool (Sean's budget constraint, plot 2 points) to draw the Sean's budget constraint.
After tax-income ($/day)
98
84
70
56
42
28
14
0
2 4 6 8 10 12 14 16 18 20 22 24 26
Leisure (hrs/day)
Tools
Shen's…
Extreme efficiency comes at a cost of terrible inequality, while perfect equality comes at a cost of terrible inefficiency. However,
there are cases where there is no efficiency cost to increased equality.
Identify each scenario that is likely to increase equality with little or no efficiency cost.
Using money and influence, rich donors successfully lobby for tax cuts for the highest 1% of earners.
An extension of unemployment benefits leads to prospective workers taking more time off between jobs.
After-school programs in Chicago reduce crime rates among teenagers.
Atlanta's investment in public transportation leads to higher worker productivity, as fewer employees miss days or show
up late for work.
Programs offering free or low-cost childcare in Los Angeles lead to increased labor force participation among women,
particularly lower-income women.
Assume a society consists of two economic groups: one group is rich and the other group is poor. Suppose that
50
percent of the population is rich while the other
50
percent of the population is poor. Consider two scenarios.
Scenario A: The rich have
$80,000
each, while the poor have
$5,000
each.
Scenario B: The rich have
$11,000
each, while the poor have
$900
each.
If you only care about average income and not about equity, you would prefer
▼
Scenario A
Scenario B
,
which has an average income of
$........??
(Enter
your response to the nearest
dollar.)
Now suppose that you only care about equity or inequality.
In this case, you would prefer
▼
Scenario B
Scenario A
,
which has a rich-to-poor ratio of
.........??
(Round
your response to one decimal
place.)
Finally, suppose you only care about living standards.
In this case, you would prefer
▼
Scenario A
Scenario B
because it has lower poverty.
Knowledge Booster
Similar questions
- Henry George and William Graham Sumner both wrote in the late nineteenth century about poverty and inequality in the industrial era, but from very different angles. How did each of these men view the situation, and what response from the government did they advocate? (Please do NOT answer this question by searching for the life stories of these two men. Please just summarize their ideas concisely, based on your comprehension of them.)arrow_forwardDiscuss the growing income inequality in the U.S. and the world with someone mature enough to have some perspective from experience about it. Ask them what they think about the widening gap between the rich and the rest of us in America, as our course materials speak of this problem. How has the economic trend for middle class Americans affected them? How as it affected you? Two examples of the marketization of society today that Sandel discusses are cash for grades and pay for getting around long lines. What, if anything, is wrong with these practices? Beyond what Sandel discusses, think of at least one social, personal, or relational good or value that you think would be negatively affected by marketization. And explain why.arrow_forwardPolly, Molly, and Dolly are all single mothers. They each can earn $10 per hour working for up to 2,000 hours per year. Their government runs a welfare system that gives income benefits of $5,000 per year for single mothers with no income. The welfare benefits are reduced by $1 for every $2 in earned income. Currently, the government also provides free health care for children of single mothers with less than $25,000 in income. Each mother values this benefit at $2,000 per year. Under this system, Polly works 200 hours per year, Molly works 1,025 hours per year, and Dolly works 1,500 hours, so only Polly receives welfare. b. Draw a representative indifference curve for each mother. Discuss how the welfare program changes the behavior of these three individuals. d. The government decides to remove the welfare lock by providing free low- quality public health care (Ho-$2,000) for everyone. If the individuals want to consumer health care more than Ho, they have to turn to private health…arrow_forward
- please answer question 2 only since question one was answered already 1). Would reducing inequality have any benefits for society in general? Specifically, would reducing inequality benefit middle class and upper class households? If so, how? 2).Do you think it likely that attempts to reduce income inequality would reduce people's incentives to work? Why or why not?arrow_forwardImagine there are two types of individuals, high types and low types. There is a degree that costs the high type $7500 to complete while costing the low type $13,000 to complete. Suppose a firm wants to use this degree to screen job applicants. They will pay those without the degree $35000, and those with the degree $"S". What must "S" be in order for this degree to separate high and low types? What would happen if this didn't hold? Draw a diagram of your findings.arrow_forwardSuppose that, on average, men earn $17 an hour and have an average of 15 years of schooling. Women earn $15 an hour and have an average of 14 years of schooling. If the estimated return to schooling for men is 0.30 (implying that each additional year of schooling translates into an additional 30 cents per hour) and the returns for schooling for women is 0.2, then the gender gap in schooling explains: 10% of the wage gap between men and women. 20% of the wage gap between men and women. 30% of the wage gap between men and women. 15% of the wage gap between men and women.arrow_forward
- Which one of the following arguments about the legal consequences of marriage is not one that David Chambers makes: Marriage rules are hardly static and change over time with regard to their benefits and responsibilities. Permitting gay and lesbian couples to adopt children is likely to hinder rather than advance movements for single-parent adoption because it will corrode the myth of two parents needed for child rearing. The legal position for unmarried same sex and opposite sex "step parents" who live with a custodial parent are generally without legal significance. The benefits of marriage are likely to be unevenly distributed among same-sex couples according to social class and income.arrow_forwardWhich statement is NOT true? a) There are often disagreements over what is an equitable distribution of income. b) Both equity and efficiency are subjective concepts. c) Another term for equity is fairness. d) There are often tradeoffs between efficiency and equity.arrow_forwardIncome inequality is necessary for Pareto optimality so that people will work as hard as they can.” “If income is distributed equally, then there must be Pareto optimality because you can’t make one person better off without making someone else worse off.” Are these statements true or false? Why or why not?arrow_forward
- Which set of policies is more likely to cause a tradeoff between economic output and equality: policies of redistribution or policies aimed at the ladder of opportunity? Explain how the production possibility frontier tradeoff between economic equality and output might look in each case.arrow_forwardOne way of looking at the fair distribution of benefits and burdens in society states that society will have some inequalities, but that when these inequalities occur, the least-advantaged person should be better off than he or she would have been if the inequality did not exist. This concept is referred to as: Principle of equal liberty Difference principle Principle of fair equality of opportunity Law of non-contradiction None of the abovearrow_forwardSuppose society consists of two individuals, A and B, who must split a fixed income of $150. Individual A's marginal utility of income is given by MUA=400-IA and individual B's marginal utility of income is given by MUB=600-6IB. Suppose the social welfare function is W=UA+UB. What if the social welfare function is, instead, W=min(UA,UB). 44. Then equity in the distribution of income would be synonymous with equality of What if the social welfare function is, instead, W=UA+2.6UB and individual B's marginal utility is, instead, MUB=200-IB. 45. What is the optimal distribution of income to individual A? $ 46. What is the optimal distribution of income to individual B? $ 47. Equity in the distribution of income would be synonymous with equality ofarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning