Question 1

As the value of the Gini coefficient approaches one,

Accepted Answer

The Gini coefficient measures income inequality, with a value of 0 representing perfect equality (everyone has the same income) and a value of 1 representing perfect inequality (one person has all the income). Therefore, as the value of the Gini coefficient approaches one, income distribution becomes more unequal.

Question 2

What is the United States government's formal definition of the poverty line?

Accepted Answer

The answer of What is the United States government's formal...

Question 3

If the government wants to minimize the welfare loss of a tax,it should tax goods with more inelastic demands or supplies.

Accepted Answer

When a tax is imposed on a good, both the consumer and the producer share the burden of the tax. The welfare loss from the tax is greater for goods with more elastic demand or supply because consumers and producers are more responsive to changes in price. In contrast, goods with more inelastic demand or supply have fewer substitute options, so consumers and producers are less responsive to changes in price, resulting in a smaller welfare loss from the tax. Therefore, the government should tax goods with more inelastic demand or supply to minimize the welfare loss.

Question 4

For a given supply curve,the deadweight loss from the imposition of a tax is smaller if demand is more elastic.

Accepted Answer

The answer of For a given supply curve,the deadweight loss...

Question 5

Suppose the equilibrium price and quantity of a 12-pack of Dr.Pepper are $5.00 and 10,000 12-packs,respectively,and the government decides to impose a $1.00 tax on every 12-pack of carbonated soft drinks.Draw two supply and demand graphs,one showing the excess burden of the tax when supply is less elastic and the other showing the excess burden of the tax when supply is more elastic.Identify the excess burden of the tax on each graph.On which graph is the excess burden the greatest?

Accepted Answer

The answer of Suppose the equilibrium price and quantity of...

Question 6

If the government is most interested in minimizing excess burden of an excise tax,should it impose the tax on goods that are elastic or on goods that are inelastic?

Accepted Answer

The answer of If the government is most interested in...

Question 7

Between 1980 and 2011,income inequality in the United States has increased in part due to expanding international trade.How does expanding international trade contribute to income inequality?

Accepted Answer

Expanding international trade allows domestic firms to hire low-skilled workers anywhere in the world, putting U.S. workers in competition with foreign workers. This has caused the wages of unskilled workers to be depressed relative to the wages of other workers, contributing to income inequality.

Question 8

As the value of the Gini coefficient approaches zero,

Accepted Answer

As the Gini coefficient approaches zero, it means that income distribution becomes less unequal, indicating a more equal distribution of income.

Question 9

Figure 18-4  Figure 18-4 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-4.The middle 20 percent of households

Accepted Answer

The middle 20 percent of households typically do not earn 20 percent of the society's total income due to income inequality. The correct answer is based on the assumption that the middle quintile earns a proportionate share of income, which is often less than 20 percent.

Question 10

What is the poverty rate?

Accepted Answer

The poverty rate is typically defined as the percentage of the population earning an annual income below the poverty line, as determined by the federal government. This measure is widely used as a way to assess economic hardship and inequality, and to guide policymaking around issues such as social welfare programs and income redistribution. While other measures of poverty and economic insecurity also exist, the federal poverty rate is perhaps the most widely recognized and commonly used.

Question 11

Suppose in an effort to raise tax revenue,the state of Vermont decides to legalize the sale of marijuana.The state will charge a tax of $50 per ounce on each sale,and the state claims that retailers will bear the entire burden of this tax.Draw a graph illustrating the situation where retail outlets would bear the entire tax burden of $50 per ounce of marijuana.Explain what would need to be true about the demand for marijuana for retailers to bear the entire burden of this tax,and if this would likely occur if marijuana sales were actually legalized.

Accepted Answer

The answer of Suppose in an effort to raise tax...

Question 12

Figure 18-3 
-Refer to Figure 18-3.Rank the above panels in terms of most unequal income distribution to least unequal income distribution.

Accepted Answer

The answer of Figure 18-3 
-Refer to Figure 18-3.Rank the...

Question 13

A statistical tool used to measure inequality is

Accepted Answer

The Gini coefficient is a commonly used statistical tool to measure inequality. It is based on the Lorenz curve, which plots the cumulative share of income or wealth held by different segments of the population. The Gini coefficient is a summary statistic that measures the extent to which the actual distribution of income or wealth deviates from a perfectly equal distribution, where the coefficient ranges from 0 (perfect equality) to 1 (perfect inequality). Therefore, the Gini coefficient can assess and compare the degree of inequality across different countries, regions, or time periods. The other options, such as the absolute and relative poverty rates, focus on the extent of deprivation or hardship experienced by individuals or households, rather than the overall inequality in the distribution of resources.

Question 14

Between 1980 and 2011,income inequality in the United States has increased in part due to rapid technological change.How does technological change contribute to income inequality?

Accepted Answer

Technological change has led to a decline in the demand for certain kinds of labor services, such as those provided by low-skilled and unskilled workers. At the same time, technology often complements the skills of well-educated workers, creating higher demand for their services. The resulting imbalance in the labor market has contributed to rising wage differentials and increasing income inequality.

Question 15

Figure 18-4  Figure 18-4 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-4.The highest 20 percent of households

Accepted Answer

The answer of Figure 18-4  Figure 18-4 shows the...

Question 16

Explain the effect of price elasticities of supply and demand on tax incidence.

Accepted Answer

The answer of Explain the effect of price elasticities of...

Question 17

Figure 18-5  
Figure 18-5 shows the Lorenz curves for Islandia and Syldavia.
-Refer to Figure 18-5.If area X = 2,060,area Y = 240,and area Z = 2,700,calculate the Gini coefficient for Islandia.

Accepted Answer

The Gini coefficient is calculated as the area between the line of equality and the Lorenz curve (area X) divided by the total area under the line of equality (area X + area Y + area Z). Here, Gini = X / (X + Y + Z) = 2060 / (2060 + 240 + 2700) = 0.41.

Question 18

Figure 18-5  
Figure 18-5 shows the Lorenz curves for Islandia and Syldavia.
-Refer to Figure 18-5.Which country has the more unequal distribution of income?

Accepted Answer

Syldavia has a higher deviation from the line of perfect equality, indicating a more unequal distribution of income.

Question 19

The Gini coefficient is measured by

Accepted Answer

The answer of The Gini coefficient is measured by
...

Question 20

Suppose the United States has a Gini coefficient of 0.4 and Sweden has a Gini coefficient of 0.25.Which of the following statements is true?

Accepted Answer

A lower Gini coefficient indicates a more equal distribution of income, so Sweden has a more equal distribution of income than the United States.

Quiz 18: Public Choice, taxes, and the Distribution of Income