Chapter 15, Problem 1SCQ

Describe how each of these changes is likely to affect poverty and inequality:

1. Incomes rise for low-income and high-income workers, but rise more for the high-income earners.
2. Incomes fall for low-income and high-income workers, but fall more for high-income earners.

To determine

(a)

To analyze:

The effect on poverty and inequality when the income rise for high-income and low-income workers but raise more for high-income earners.

Explanation of Solution

Income is influenced by demandand supply in labor markets, which can lead to very high income for some people and very low incomes for others. Poverty implies people who are unableto fulfil their basic needs of life.Income inequality is referred to the disparity between people with higher and lower incomes.

If income rise for both high-income and low-income workers but rise more for high-income earners then poverty will fall and inequality will rise, as people with high income will continue to earn more, thereby creating inequality in the economy. The level of people falling under the poverty line will increase.

In short, rich people will become richer and poor will become poorer.

Economics Concept Introduction

Poverty line : The number of peoplebelow a certain level of income, called the poverty line, are said to be poor and lack basic amenities in life.

Income Inequality: Income inequality is measured by dividing the population of an economy into various groups then comparing the groups based on their incomes i.e. high incomes, middle incomes and low incomes.

To determine

(b)

To analyze:

Effect on poverty and inequality if incomes fall for high-income and low-income workers but fall more for high-income earners.

Explanation of Solution

Poverty implies people who are unableto fulfil their basic needs of life.Income inequality is referred to the disparity between people with higher and lower incomes.

If income falls for low-income and high-income workers, it will result in rise in poverty and fall in inequality.The income gap between different groups of people will reduce and so will inequality.

Economics Concept Introduction

Poverty line : The number of peoplebelow a certain level of income, called the poverty line, are said to be poor and lack basic amenities in life.

Income Inequality : Income inequality is measured by dividing the population of an economy into various groups then comparing the groups based on their incomes i.e. high incomes, middle incomes and low incomes.