MICROECONOMICS (LL)W/ACCESS >IC<
20th Edition
ISBN: 9781308103341
Author: McConnell
Publisher: MCG/CREATE
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Question
Chapter 21, Problem 8DQ
To determine
The trade-off between equality and efficiency.
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Do you agree or disagree? Explain your reasoning. “There need be no trade-off between equality and efficiency. An ‘efficient’ economy that yields an income distribution that many regard as unfair may cause those with meager incomes to become discouraged and stop trying. So efficiency may be undermined. A fairer distribution of rewards may generate a higher average productive effort on the part of the population, thereby enhancing efficiency. If people think they are playing a fair economic game and this belief causes them to try harder, an economy with an equitable income distribution may be efficient as well.
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?)
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."
Chapter 21 Solutions
MICROECONOMICS (LL)W/ACCESS >IC<
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- Please answer based on information above. 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?)arrow_forwardImagine an economy with only two people. Larry earns $20,000 per year, while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this twoperson economy consists of two line segments. The first runs from the origin to point a, while the second runs from point a to point b. a. Calculate the Gini ratio for this two-person economy using the geometric formulas for the area of a triangle (= ½ × base × height) and the area of a rectangle ( = base × height). (Hint: The area under the line segment from point a to point b can be thought of as the sum of the area of a particular triangle and the area of a particular rectangle.) b. What would the Gini ratio be if the government taxed $20,000 away from Roger and gave it to Larry? (Hint: The figure will change.) c. Start again with Larry earning $20,000 per year and Roger earning $80,000 per year. What would the Gini ratio be if both their incomes doubled? How much has the Gini ratio changed from before the doubling…arrow_forwardDifferentiate equality from equityarrow_forward
- Would reducing inequality have any benefits for society in general? Specifically, would reducing inequality benefit middle class and upper class households? If so, how? Do you think it likely that attempts to reduce income inequality would reduce people's incentives to work? Why or why not? please put the resourcesarrow_forwardSuppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15 utils. If our goal is to maximize the combined total utility of Victoria and Fredrick, we should: a. Redistribute income from Victoria to Fredrick. b. Redistribute income from Fredrick to Victoria. c. Not engage in any redistribution because the current situation already maximizes total utility. d. None of the above.arrow_forwardIf there are two communities, one with ten families have incomes of $100,000 each and ten families have incomes of $20,000 each. In the other community, ten families have incomes of $250,000 each and ten families have incomes of $25,000 each. Which community is the distribution of income more unequal? In which community is the problem of poverty likely to be worse?Which distribution of income would Rawls prefer? Explain.Which distribution of income do you prefer? Explain.Why might someone have the opposite preference?arrow_forward
- Which statements are TRUE? Perfect inequality in distribution of income can be exhibited in reality. Holding all other incomes constant, if we transfer some income from a richer person to a poorer person, the resulting new income distribution is more unequal. There is absolute poverty below the international poverty line. Modern sector enlargement assures a better Lorenz Curve for a nation. The average poverty gap measures the sum of the differences the income of each person from the absolute poverty line. The multidimensional poverty index gives equal weight to all eight indicators. The normalized income shortfall is a measure of income inequality. When government’s intervention to poverty and income inequality are thoroughly planned, implemented and monitored, a nation is secured of achieving economic development. When the S-shaped function cuts the 45-degree line of equality from above, the equilibrium achieved is stable. Underdevelopment can be fully explained by coordination…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_forward1. In Economics, This number represents perfect equality. * a. 0 b. 1 c. -10 d. 100 2. In Economics, This number represents perfect inequality. * a. 0 b. 1 c. -10 d. 100arrow_forward
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