Microeconomics with Connect Access Card
20th Edition
ISBN: 9781259278556
Author: Campbell McConnell
Publisher: McGraw-Hill Education
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Question
Chapter 21, Problem 5DQ
To determine
The causes of income inequality.
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A5.
Suppose that the initial rural distribution of income is (1, 2, 3, 4) while the initial urban distribution is (3, 4). The poverty line is 2, so the overall poverty rate (headcount index) is 1/3. Now imagine that all of the rural poor move to urban areas and each of them gains 20% in real income. Verify that the overall poverty rate falls to 1/6, yet the urban poverty rate rises from zero to 1/4.
20.7 Essay: How Economic Inequality Arises
1) What is "human capital" and why is it considered an investment?
2) What is "human capital"? How is it important in the determination of a worker's wage rate?
3) How is human capital acquired?
4) How does the demand for high-skilled workers compare to the demand for low-skilled workers? Why does this difference exist?
5) How does an increase in the cost to acquire a skill affect the vertical distance between the supply curves of high-skilled and low-skilled workers?
2) Choose the economic indicators below that do not cause higher income inequality but do correlate with higher income inequality; they may be caused by it. Options indicate how the indicator changes when income inequality increases.
- GDP growth rate falls
- Economic mobility rises
- Educational access falls (not the same thing as "education")
- Educational access rises (not the same thing as "education")
- Access to health care falls
- Rate of homeownership rises
- Rate of homeownership falls
- Economic mobility falls
- Access to health care rises
- GDP growth rate rises
- All of the above
- None of the above
Chapter 21 Solutions
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