Chapter 20, Problem 1DQ

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?)

Which of the following is an example of the circular flow of income that shows the interdependence of households and firms? Group of answer choices Firms in the factor markets pay households in the form of wages, interest, rent and profit for the resources that households supplied.   Households supply their resources to the firms in the product markets and, in turn, demand in the factors market the goods and services produced by firms.   Households demand their resources from firms in the factors’ market and, in turn, supply in the product market the goods and services produced by firms.   Firms supply resources that households demand in the factors’ market and, in turn, provide households with the goods and services produced for the product market.