Deck 18: Income Distribution and Poverty

Question 1

Property income takes the form of ________.

A) transfer payments
B) wages and salaries
C) profits, interest, dividends, and rents
D) compensating differentials

Answer 1

C

Question 2

Both Amy and Tom are trained as nurses. Amy makes $35,000 a year working as a nurse in an emergency room in a New York City hospital. Tom makes $20,000 working as a community health nurse in New York City. Which of the following is true?

A) Tom is clearly worse off than Amy, because he earns $15,000 a year less.
B) Tom must be better off than Amy if he is willing to take a job at $15,000 a year less than Amy.
C) From this information it cannot be determined who is better off because income is an imperfect measure of well-being.
D) Even though income is an imperfect measure of well-being, Amy and Tom must be equally well off because either is free to switch jobs.

Answer 2

C

Question 3

The demand for Alaskan fishermen is the same as the demand for deep-sea divers in Hawaii. The annual earnings of Alaskan fishermen is 30% higher than the earnings of Hawaiian deep-sea divers. What is a possible explanation for this?

A) Alaskan fishermen can work only part of the year, but deep-sea divers can work year round in Hawaii.
B) The amount of human capital needed to be a deep-sea diver must be greater than the amount of human capital necessary to be a fisherman in Alaska.
C) Alaskan fishermen must face discrimination that is not encountered by Hawaiian deep-sea divers.
D) Being a fisherman in Alaska must be more dangerous than being a deep-sea diver in Hawaii.

Answer 3

D

Question 4

Upon graduation, Ellie had two job offers. The jobs were identical in every way with two exceptions. One job was located in San Diego, CA and offered an annual salary of $50,000. The other job was located in Omaha, NE and offered an annual salary of $60,000. The salary difference is due to

A) compensating differentials.
B) discrimination.
C) transfer payments.
D) the firm in California had a higher demand for workers than the firm in Nebraska.

Question 5

All Pittsburgh police officers must go through the same training program, but police officers assigned to the narcotics squad earn 10% more than police officers assigned to guard the city courthouse. This 10% difference in pay is an example of a

A) human capital differential.
B) compensating differential.
C) transfer payment.
D) utility differential.

Question 6

On-the-job-training is an example of ________.

A) an investment in human capital
B) a compensating wage differential
C) economic income
D) income redistribution

Question 7

Individuals with more experience tend to earn more than individuals with less experience. This is because

A) experience is a compensating differential.
B) experience on the job increases an individual's human capital.
C) it is only fair that a more-experienced worker be paid more than a less-experienced worker.
D) the government requires that more-experienced workers be paid more than less-experienced workers.

Question 8

The idea that individuals who work for companies should receive at least an equitable hourly income is known as

A) minimum wage.
B) compensating differential.
C) economic income.
D) transfer payment.

Question 9

Earning a master's degree in Engineering is an example of ________.

A) a Pareto good
B) a compensating differential
C) economic income
D) an investment in human capital

Question 10

Critics of minimum wage laws argue that such laws will end up hurting people with lower skills because

A) lower skilled workers will be forced into taking jobs that they would not freely choose.
B) compensating differentials will not be applied.
C) property income is a better way to measure hourly rates.
D) these laws interfere with the smooth functioning of the labor market and create unemployment.

Question 11

In the summer of 2009, the United States federal minimum wage was raised to $7.25. According to theory, what will likely be the result of the increase?

A) Some workers will leave the labor market.
B) Firms will hire more workers.
C) All workers prior to the wage increase will now earn at least $7.25 per hour.
D) Unemployment will increase as firms lay off workers.

Question 12

Households acquire property through ________.

A) inheritance only
B) savings and inheritance
C) savings only
D) supplying labor in the labor market

Question 13

Wages and salaries (including wage supplements) accounted for ________ of personal income in the United States in 2012.

A) 37%
B) 50%
C) 64%
D) 90%

Question 14

Which of the following is an example of a compensating differential?

A) A plastic surgeon must train for five more years than an internist and on average plastic surgeons earn 40% more per year than internists.
B) A bank hires both men and women who have just graduated from college. The women are assigned positions as bank tellers, and the men are assigned to the management training program.
C) It takes the same amount and type of training to be either a prison guard or a parole officer. Prison guards earn about 15% more than parole officers with the same amount of experience. About 3% of prison guards, but only 1% of parole officers, are injured on the job each year.
D) Bill was injured on the job and as a result of his injuries he can no longer work. He now qualifies for $1,000 a month in disability payments.

Question 15

Households derive the majority of their income from ________.

A) wages and salaries
B) property
C) inherited wealth
D) government transfers

Question 16

All of the following statements are true EXCEPT:

A) In the United States, the minimum wage was first nationally adopted in 1932.
B) The first minimum wage law was adopted in New Zealand.
C) The minimum wage is one strategy used to reduce wage inequality.
D) The minimum wage is the lowest wage firms can legally pay their workers.

Question 17

The $1,000 you earned last year on your money market fund is an example of

A) property income.
B) transfer income.
C) inheritance income.
D) human capital income.

Question 18

Paula was born with an aptitude for learning languages. This aptitude is an example of ________.

A) a compensating differential
B) human capital
C) property
D) natural capital

Question 19

Professional female basketball players make far less income than do professional male basketball players. Why?

A) gender discrimination
B) The supply of female players is far greater than the supply of male players.
C) The demand for female players is far less than the demand for male players.
D) compensating differentials

Question 20

In the United States most people's wealth comes from

A) inheritance.
B) transfer payments.
C) saving.
D) profits.

Question 21

Household income comes from two main sources: wages/salaries and property.

Question 22

The stock of knowledge, skills, and talents that people possess is called personal capital.

Question 23

All government payments to individuals are called transfer payments.

Question 24

In the United States, in 2006, the most evenly distributed income source was

A) property income.
B) total income.
C) labor income.
D) transfer income.

Question 25

The difference between money income and economic income is ________.

A) money income excludes but economic income includes cash and noncash transfer payments and capital gains income
B) economic income excludes but money income includes cash and noncash transfer payments and capital gains income
C) money income excludes but economic income includes noncash transfer payments and capital gains
D) economic income excludes but money income includes noncash transfer payments and capital gains

Question 26

In 2012 about 18% of personal income in the United States came from

A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.

Question 27

Recall the Economics in Practice on page 370: According to a study discussed in the Economics in Practice, when students were moved from a class taught by a below-average teacher to one at the 75th percentile, the move

A) made no difference on the students' future annual earnings.
B) increased the students' future earnings by 3.5% per year.
C) increased the students' future earnings by more than 50% per year.
D) actually decreased the students' future annual earnings.

Question 28

In theory, a minimum wage should lead to unemployment, but there is no evidence of such an effect.

Question 29

American workers in Iraq earn hazard pay. This is an example of a compensating differential.

Question 30

Economic income is

A) the amount of money a household can spend during a given time period without increasing or decreasing its net worth.
B) income from the ownership of real property and financial holdings.
C) differences in wages that result from differences in working conditions.
D) payments by government to people who do not currently supply goods or services in exchange.

Question 31

All transfer payments are made to people with low incomes.

Question 32

The amount of money a household can spend during a given time period without increasing or decreasing its net worth is called ________ income.

A) economic
B) money
C) after-tax
D) property

Question 33

Human capital is a combination of inborn and acquired skills, talent, and knowledge.

Question 34

About 75 percent of American women over the age of 16 are in the labor force.

Question 35

For the bottom 10% of families in the income distribution, transfer payments account for approximately ________ of income.

A) 3%
B) 38%
C) 52%
D) 80%

Question 36

In 2012 about 25% of personal income in the United States came from

A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.

Question 37

An equal distribution of income would yield a Lorenz curve that is a ________.

A) line lying directly on the horizontal axis
B) line lying directly on the vertical axis at 0%
C) 45-degree line between 0 and 100%
D) line lying directly on the vertical axis at 100%

Question 38

The bottom fifth of families in the income distribution receive most of their income from ________ income.

A) labor
B) property
C) transfer
D) gambling

Question 39

The biggest single transfer program at the federal level is

A) farm subsidies.
B) unemployment compensation.
C) Social Security.
D) the agricultural support program.

Question 40

The top 1% of families in the income distribution receive most of their income from ________ income.

A) labor
B) property
C) transfer
D) profit

Question 41

The income distribution has become more unequal in the United States over the last 30 years.

Question 42

Refer to the information provided in Figure 18.4 below to answer the questions that follow. Figure 18.4
Refer to Figure 18.4. The wealthiest fifth of families earned ________% of income in Outland.

A) 20
B) 40
C) 60
D) 95

Question 43

The only advanced country to experience decreasing inequality in their income distribution is ________.

A) the United States
B) Great Britain
C) France
D) Canada

Question 44

As income becomes more unequally distributed, the Lorenz curve ________ and ________.

A) moves further down to the right; the shaded area increases
B) moves further up to the left; the shaded area decreases
C) moves further up to the left, rising above the 45 degree line; the shaded area increases
D) moves further down to the right; the shaded area decreases

Question 45

In 2009, the highest incidence of poverty was

A) women living in households with no husband present.
B) individuals over 65.
C) Hispanic families.
D) black men.

Question 46

Refer to the information provided in Figure 18.4 below to answer the questions that follow. Figure 18.4
Refer to Figure 18.4. Suppose that the Lorenz curve ran along the horizontal axis to 100% of families, then became vertical to 100% of income. This would mean that

A) the distribution of income is perfectly equitable.
B) the distribution of income is completely inequitable.
C) only one family earned all the income.
D) the distribution of income is equal.

Question 47

The Gini coefficient is ________.

A) the most common way of representing the income distribution graphically
B) a commonly used measure of the degree of inequality in an income distribution
C) a commonly used measure of the degree of inequity in a property distribution
D) the ratio of the percentage of total income received by the top 20% of families to the percentage of total income received by the bottom 20% of families

Question 48

Relating to the Economics in Practice on page 374: Considerable evidence suggests that recently in the United States, executive compensation has ________ and the real wage of the average worker has ________.

A) increased; decreased
B) decreased; increased
C) increased; remained stagnant
D) remained stagnant; decreased

Question 49

The bottom 50% of families ranked by income control about ________ of the nation's net worth.

A) 1.1%
B) 2.6%
C) 5.4%
D) 10.2%

Question 50

The official poverty line in the United States is set ________.

A) equal to one-half the average income in the United States
B) at three times the cost of the Department of Agriculture's minimum food budget
C) at three times the cost of the Department of Housing's minimum housing allowance
D) at the amount necessary to allow an individual to buy the same market basket of goods that the average urban wage earner can afford

Question 51

When measuring income for the purpose of classifying people as poor, the measurement of income used is

A) economic income.
B) comprehensive income.
C) cash income and noncash transfer payments.
D) money income.

Question 52

Relating to the Economics in Practice on page 377: One of the best predictors of a young person's future place in the income distribution is

A) geographic location.
B) gender.
C) the place occupied by his or her parents.
D) the amount of education obtained.

Question 53

A Gini coefficient of zero means that ________.

A) the income is equally distributed
B) one person has all the income and everyone else has nothing
C) all the income is received by the top 20% of families
D) the income is split equally between the top 20% and the rest of the distribution

Question 54

Counting the total number of individuals on any assistance program and dividing by the population determine the poverty line.

Question 55

Evidence suggests that in the last several decades, technology has played a role in driving inequality. Thus, ________ may be key to reducing inequality in the future.

A) education
B) savings
C) research and development
D) investment

Question 56

Refer to the information provided in Figure 18.4 below to answer the questions that follow. Figure 18.4
Refer to Figure 18.4. The second poorest fifth of families earned ________% of income in Outland.

A) 5
B) 7
C) 12
D) 17

Question 57

A Gini coefficient of one means that ________.

A) income is distributed equally
B) one family has all the income and everyone else has nothing
C) all the income is received by the top 20% of families
D) the income is split equally between the top 20% and the rest of the distribution

Question 58

If the cost of the Department of Agriculture's minimum food budget for two people is $3,000 per year, the official poverty line for a family of two would be

A) $1,000.
B) $3,000.
C) $9,000.
D) $18,000.

Question 59

If the official poverty line for a family of four is $15,000, then the Department of Agriculture's minimum food bundle costs a family of four ________ per year.

A) $1,500
B) $3,000
C) $5,000
D) $15,000

Question 60

Refer to the information provided in Figure 18.4 below to answer the questions that follow. Figure 18.4
Refer to Figure 18.4. Suppose that the Lorenz curve were the same as the 45-degree line OB. This would mean that

A) the distribution of income is perfectly equitable.
B) the distribution of income is completely inequitable.
C) only one family earned all the income.
D) the distribution of income is equal.

Question 61

Disaggregating the distribution of income by race shows that the mean household income for the top 20% of African-American households was very similar to that of the top 20% of Hispanic households.

Question 62

Total income is more evenly distributed than labor income.

Question 63

Poverty rates among the elderly have risen in the past few decades.

Question 64

Economic income is measured "after-tax."

Question 65

The United States is the only country to face increasing inequality in their income distribution in the last several decades.

Question 66

Disaggregating the distribution of income by race shows that the mean household income for the bottom 20% of African-American households was very similar to that of the bottom 20% of white households.

Question 67

Any point inside the utility possibilities frontier is ________.

A) inefficient because both people could be made better off simultaneously
B) inefficient because it is only possible to make one person better off by making the other person worse off
C) efficient because it is only possible to make one person better off by making the other person worse off
D) efficient because both people could be made better off simultaneously

Question 68

A Gini coefficient of 0.25 represents less inequality in income distribution than a Gini coefficient of 0.4.

Question 69

If economic income rather than money income were used to determine whether or not an individual is poor, the poverty rate would increase.

Question 70

An individual's economic income is generally larger than their money income.

Question 71

In 2011, the poverty threshold for a family of four in the United States was slightly greater than $23,000.

Question 72

Refer to the information provided in Figure 18.1 below to answer the questions that follow. Figure 18.1
Refer to Figure 18.1. Point B is

A) inefficient because both people could be made better off simultaneously.
B) inefficient because it is only possible to make one person better off by making someone else worse off.
C) efficient because both people could be made better off simultaneously.
D) efficient because to make one person better off the other person must be made worse off.

Question 73

Any point on the utility possibilities frontier is ________.

A) inefficient because both people could be made better off simultaneously
B) inefficient because it is only possible to make one person better off by making the other person worse off
C) efficient because it is only possible to make one person better off by making the other person worse off
D) efficient because both people could be made better off simultaneously

Question 74

As the distribution of income becomes more equal, the Lorenz curve comes closer to the 45-degree line.

Question 75

Refer to the information provided in Figure 18.1 below to answer the questions that follow. Figure 18.1
Refer to Figure 18.1. At Point A the distribution of goods is

A) equitable.
B) efficient.
C) equal.
D) just.

Question 76

Nearly one in four African-Americans lives in poverty.

Question 77

Recent data suggests that the percentage of the population in poverty for African-American families is approximately three times that of white families.

Question 78

In the United States, the distribution of wealth is more unequal than the distribution of income.

Question 79

An equitable distribution of income means that ________.

A) income is equally distributed
B) income is fairly distributed
C) income is efficiently distributed
D) there is a long-run equilibrium distribution

Question 80

The utility possibilities frontier is a graphic representation of a two-person world that shows all points at which A's utility can be ________.

A) increased only if B's utility is increased
B) decreased only if B's utility is decreased
C) increased only if B's utility is decreased
D) held constant as B's utility is either increased or decreased