Question 1

The table below gives the income distribution in two countries, A and B. Draw the Lorenz Curve for each country. Which country has the larger Gini coefficient?

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Question 2

Why doesn't a Lorenz curve ever bow above the line of equality?

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Question 3

Consider the following income tax schedule for a married couple who are combining their incomes and filing jointly:

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Question 4

Why would the widespread splitting apart of families increase the income inequality in a nation?

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Question 5

Under what circumstance would an increase in the payroll tax paid by employers cause the wage to fall by the same percentage as the tax increase, regardless of the labor supply curve's elasticity?

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Question 6

Suppose an economic historian discovers that a tax on a particular good resulted in a large price change while having little effect on the quantity demanded. Was this good most likely a necessity or a luxury good? Explain.

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Question 7

Analyze the distribution of household incomes given in the table below. Rank the families by income. Draw a Lorenz curve for the income distribution of these five families. Is their distribution of incomes more equal than the distribution of incomes for the entire population of the United States?

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Question 8

Given the data in the table below, draw the Lorenz curve before and after an income tax. Is this tax progressive or regressive?

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Question 9

Consider the following personal income tax schedule for a taxpayer who is not married (single).

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Question 10

Suppose the government considers imposing a tax on two types of goods: luxury goods and necessity goods. Luxury goods have a higher elasticity of demand than necessity goods. Does a tax on luxury goods have a greater deadweight loss than a tax on necessity goods?

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Question 11

In looking at income distribution, what is a quintile?

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Question 12

Suppose the government decides to decrease the payroll tax paid by employers. What will happen to workers' wages? If the labor supply curve is perfectly inelastic, what will happen to employment? What will be the effect on workers' wages?

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Question 13

Suppose a new law requires that employers pay for employees' total retirement benefits. Show how the law affects the supply of and demand for labor. What happens to wages and employment relative to the pre-law situation?

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Question 14

Because of work disincentives, government transfer and tax policies have increased the inequality of income in the United States.

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Government transfer and tax policies are generally designed to reduce income inequality by redistributing income from higher-income individuals to lower-income individuals through mechanisms like progressive taxation and social welfare programs.

Question 15

Many politicians argue against taxing home heating oil because it is a regressive tax. Explain. If the demand for heating oil is very elastic, what happens to the quantity demanded after the tax is imposed? Who will bear most of the burden of the tax in this case?

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Question 16

The table below gives hours worked per month and welfare payments received.

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Question 17

A social safety net aims at helping corporations employ the poor.

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A social safety net aims at providing assistance to the poor, such as food or housing subsidies, unemployment benefits, or healthcare, in order to reduce poverty and inequality. It does not specifically aim at helping corporations employ the poor, although it may indirectly support job creation and economic growth.

Question 18

Suppose a country is concerned about providing adequate incentives for entrepreneurs. What type of tax system should be implemented, progressive or flat?

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Question 19

U.S. government tax and transfer policies have tended to lower income inequality.

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U.S. government tax and transfer policies, such as progressive income taxes and social welfare programs, have been shown to reduce income inequality by providing support to those with lower incomes and imposing higher taxes on those with higher incomes.

Quiz 14: Taxes, Transfers, and Income Distribution