Question 1

I expect that my wages will increase over time. What theory justifies this expectation?

Accepted Answer

The life-cycle wage pattern theory explains that wages tend to increase over an individual's career, as they gain experience and skills. This is due to the individual's increasing productivity and value to employers over time.

Question 2

What differentiates the U.S. income inequality ratio from that found in less-developed countries?

Accepted Answer

In the United States, the poverty line is set at a relatively higher income level than in less-developed countries, so even people who are considered poor by U.S. standards may be earning more than people in poverty in other countries. Additionally, there are more opportunities for social mobility and access to education and job training programs in the United States than in many less-developed countries, which can help individuals in poverty improve their economic situation.

Question 3

What is the name of the model that best explains why an actor in a nationally broadcast television program earns so much more than an actor who is equally talented and productive but who performs in a local play?

Accepted Answer

The winner-take-all model suggests that in highly competitive industries such as the entertainment industry, a small number of individuals (winners) will earn disproportionately high salaries while the majority (losers) will earn much less, even if they possess similar levels of talent and productivity. In this case, the actor in the nationally broadcast television program is likely one of the winners, while the local play actor is a loser in terms of earnings.

Question 4

Besides overt sex discrimination, why also might women earn less than men in the workplace?

Accepted Answer

Women may earn less than men not only due to overt sex discrimination but also because they tend to concentrate in a limited range of professions that pay less, such as nursing or teaching. This phenomenon is known as occupational segregation or the gender pay gap.

Answer: E
 Women may also earn less than men due to receiving an efficiency wage, which means that they are paid less because employers assume that women are less productive or committed to their jobs than men. This can be a form of implicit bias or prejudice, which may contribute to the gender pay gap.

Note: options A, C, and D are not plausible explanations for the gender pay gap because research shows that women generally have less human capital, work experience, and working hours than men on average, which can result in lower wages.

Question 5

As a male nurse, I often complain about the low pay I receive despite the fact that I have a significant amount of education. What economic theory explains my suppressed wage?

Accepted Answer

Occupational crowding theory suggests that when an occupation becomes feminized or associated with women, the average wage for that occupation will decrease. This is due to a larger supply of labor in the occupation, leading to increased competition and decreased wages. As nursing is a female-dominated profession, it is likely that occupational crowding is contributing to the comparatively low wages for male nurses.

Question 6

If households in the lowest income-earning bracket are doing relatively well compared to those in the highest income-earning bracket, the inequality ratio will:

Accepted Answer

If households in the lowest income-earning bracket are doing relatively well compared to those in the highest income-earning bracket, the inequality ratio will fall. This is because the inequality ratio measures the gap between the highest and lowest earners. If the low earners are doing relatively well, that means the gap between them and the high earners is smaller, leading to a lower inequality ratio.

Question 7

What theory would suggest that a Nobel Prize-winning economist should earn significantly more than other economists?

Accepted Answer

The winner-take-all theory suggests that in certain industries, a small number of top performers will earn a disproportionately large share of the rewards. This theory could be applied to the field of economics, where a Nobel Prize-winning economist would be considered a "top performer" and therefore could earn significantly more than other economists.

Question 8

Why is it unlikely that income inequality could ever be eliminated?

Accepted Answer

It is unlikely that income inequality could ever be eliminated because workers will always have different skills, abilities, and productivities. This will naturally result in some workers earning more income than others.

Question 9

What theory can partially explain why pink-collar jobs, such as nurse and dental hygienist, earn so little despite the important services they provide?

Accepted Answer

Occupational crowding theory suggests that when a large number of individuals (often women) enter a specific job market, such as nursing or dental hygiene, the increased supply of labor in that field can lead to lower wages. This theory can partially explain why pink-collar jobs, which are predominantly filled by women, tend to have lower earnings despite the critical services they provide.

Question 10

What is the approximate inequality ratio (richest 20% ÷ poorest 20%) in the United States?

Accepted Answer

According to data from the US Census Bureau in 2019, the Gini coefficient (a measure of income inequality) in the United States was 0.48, which translates to an inequality ratio of approximately 15.8.

Question 11

What role does corruption play in creating income inequality?

Accepted Answer

The answer of What role does corruption play in creating...

Question 12

The occupational crowding model of discrimination predicts which of the following?

Accepted Answer

The occupational crowding model of discrimination predicts that men's wages will fall and women's wages will rise when certain jobs are no longer dominated by men, which supports choice D. The model suggests that women face discrimination when entering male-dominated fields and that the resulting crowding of women in certain occupations leads to lower wages for both genders. Therefore, the model implies that discrimination will persist unless the government intervenes, which contradicts choice B. Choice A is not directly related to the occupational crowding model, and choice E could be true in some cases but is not a prediction of the model.

Question 13

What role does a strong government play in economic development?

Accepted Answer

A strong government plays a crucial role in economic development by providing a stable and transparent regulatory framework with minimal corruption. By doing so, it encourages domestic and foreign investments, which leads to increased economic growth and development.

Question 14

Approximately what percentage of the total national income is owned by the poorest 40% (bottom two quintiles) of households in the United States?

Accepted Answer

The answer of Approximately what percentage of the total national...

Question 15

If your daughter were to inform you that she wanted to be a bank teller and you were concerned about her ability to pay her bills, what economic theory could you use to convince her to become an engineer instead?

Accepted Answer

The answer of If your daughter were to inform you...

Question 16

You have an idea to provide a grocery home-delivery service in the developing country of Mongolia. What role would corruption play in the success of your business?

Accepted Answer

Corruption is a major problem in Mongolia and can greatly affect the success of a business. Bribes may be necessary to get licenses or permits, and this can increase the cost of doing business. Additionally, if your business is successful, corrupt officials may try to extort money from you or threaten to shut down your operation if you do not comply with their demands. This uncertainty and risk can discourage potential investors from starting or expanding their businesses in Mongolia.

Question 17

What theory can explain why a CEO might earn so much more than other managers with similar experience and education at the same company?

Accepted Answer

The winner-take-all theory suggests that in certain industries, individuals who are able to outcompete others can earn significantly higher incomes than those who are slightly less productive. CEOs are often in a highly competitive role and their decisions can have a significant impact on company performance, which gives them the ability to earn a disproportionate amount compared to other managers.

Question 18

Why do the wages of those near retirement decrease slightly?

Accepted Answer

As workers near retirement, they may gain experience but often do not keep up with new technologies, which can lead to a slight decrease in wages due to reduced demand for their skills.

Question 19

Which statement best represents the phenomenon of occupational crowding?

Accepted Answer

Occupational crowding refers to the phenomenon where certain jobs, industries or occupations have disproportionately high concentrations of one gender. Women, in particular, tend to be overrepresented in specific occupations such as teaching, nursing and administration, while men tend to dominate fields such as engineering, finance, and technology. This phenomenon can result in gender-based pay disparities, limited career advancement opportunities and decreased diversity in the workplace.

Question 20

The pay for journalists is quite varied. A top-tier journalist often receives a steady flow of assignments, such as two weekly columns, and so earns generous pay. A lower-tier journalist, however, often experiences sporadic work assignments with little to no pay. What economic theory explains this situation?

Accepted Answer

The winner-take-all theory explains that in certain industries, there is a small number of high-income individuals who dominate while the majority earns low wages. This is because demand for these individuals' services is high and the market is competitive, resulting in high pay for those at the top and low pay for everyone else. In the case of journalists, top-tier journalists with consistently high demand for their work receive high pay, while lower-tier journalists with less demand receive little to no pay.

Quiz 15: Income, Inequality, and Poverty