Economics Study Set 20

Business

Quiz 30 :

The Economics of Social Security.

Quiz 30 :

The Economics of Social Security.

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Is the Social Security system based on the same principles as private insurance? Why or why not?
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Voluntary exchange always make both the parties better off, otherwise the exchange would have not taken place. Now if we work with this Milton Friedman type understanding of welfare we can say here that both will become better off here and welfare is increased.

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Why does the Social Security system face a crisis? Are there real assets in the Social Security Trust Fund that can be used to pay future benefits? Will the trust fund help to avert higher future taxes or benefit reductions or both when the babyboomers retire? Why or why not?
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Wage rates reflect productivity it is true. But also the rise in wage rates without a rise in productivity can be explained as a rise in the demand for the worker of a certain type. Here the demand for the painters might have risen and for that ages might rise even if the productivity remains same.

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Do you think workers should be permitted to invest all or part of their Social Security taxes into a personal retirement account? Why or why not?
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When a person's opportunity cost is $ 6 per hour then his total cost in flight will be $ 116 but his total cost in bus will be $ 100. Hence bus is cheaper for him.
Now for someone whose opportunity cost is $ 10, for him total cost in flight will be $ 120 and total cost in but will be $ 120, hence he will be indifferent in travelling in bus or flight.
And someone whose opportunity cost is very high $ 14 per hour for him total cost in flight will be $ 124 and his total cost in bus will be $ 140. It implies for him flight will be cheaper.

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How does Social Security affect the economic well-being of blacks relative to whites and Hispanics? Explain.
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Does the current Social Security system promote income equality? Why or why not?
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The Social Security payroll tax is split equally between the employee and the employer. Would it make any difference if the entire tax were imposed on employees? Would employees be helped if all the tax were imposed on employers? (Hint: You may want to consult the section on tax incidence in Chapter 4.)
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