Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 20, Problem 1DQ
To determine
Leaky bucket analogy.
Expert Solution & Answer
Explanation of Solution
When the government introduces the process of redistribution of income among its citizens to reduce the income inequality of the economy, there merges many leaks in the income, and they are together known as the leaky bucket. When the topic of leaky bucket analogy is discussed, the students who are interested in more equitable distributionwould be willing to accept a greater leakage in percentage terms. On the other hand, the students who are more interested in efficiency, they will accept a much lesser percentage.
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Students have asked these similar questions
Using the diagram above, which of the following is true?
a. In country S the poorest 30 percent of the population receive 13 percent of the available income in country S.
b. In country T the richest 10 percent of the population receive 23 percent of the available income in country T.
c. In country S the richest 10 percent of the population receive 55 percent of the available income in country S.
d. Country S has a more equal distribution of income than does country T.
e. None of the above is true.
Use the information above to help answer these last two questions
Would this transfer increase, decrease, or have no effect on income inequality in this group?
Redistributing income from the highest earner to the lowest one would reduce the utility of the top earner and increase the utility of the lowest earner. But what would happen to overall utility in the economy? Would it increase, decrease, or remain the same? Explain your answer. (Hint: does the marginal utility of income diminish as one earns more?)
Offer one reason why income inequality might increase productivity and efficiency in an economy. Offer one reason why income inequality might reduce productivity and efficiency in an economy. Explain your answers.
Chapter 20 Solutions
Economics: Principles & Policy
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Similar questions
- Indicate True (T) or False (F) for the following question, and explain your answer in 50 words "If a society wishes to achieve a high degree of efficiency, then it must also accept a high level of inequality."arrow_forwardQ.2. One tradeoff society faces is between efficiency and equity. Define each term. If Oman government redistributes income from the rich to the poor, explain how this action affects equity as well as efficiency in the economy.arrow_forwardIf Oman government redistributes income from the rich to the poor, explain how this action affects equity as well as efficiency in the economyarrow_forward
- In 2015, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $76 billion. Given that there were about 322 million people living in the United States that year, how much could each person have received if Gates’s wealth had been divided equally among the population of the United States?arrow_forwardHow can Government intervention be required in order to redistribute money and wealth to increase opportunity and result in inequality. Can you use two pieces of evidence to explain why one being from the US Constitution and one from a foundational document of government policies. Use reasoning to explain why your evidence supports the claim and respond to a possible opposing or alternative perspective using refutation, concession, or rebuttal.arrow_forwardIs it just to tax the rich to give to the poor? Should the government tax Bill Gates and other wealthy people and use the money to supplement the income of unemployed people, single mothers with low incomes, or other poor people? Should the government tax rich people and loan the money interest free to poor kids so that they can go to college? Or would all of that be unjust? Make sure to mention ethical egoism, and altruism in your answer.arrow_forward
- What are three policy solutions to lessen the economic consequences of inequality. Explain in detail.arrow_forwardExplain why a capitalist economic system tends to bring about a highly unequal distribution of income. Why did income inequality rise significantly in the U.S. after about 1980?arrow_forward
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