Question 1

Because people can borrow when they are young, the life cycle theory would suggest that a standard of living depends on:

Accepted Answer

The life cycle theory suggests that people can borrow when they are young and then pay back when they are older, so the standard of living is determined by lifetime income rather than just annual income.

Question 2

A family's ability to buy goods and services depends largely on its:

Accepted Answer

Permanent income refers to a household's income from sources such as salaries, rent, social security, etc. It is considered as a more reliable source of income than transitory income or one-time windfalls. Therefore, a family's ability to buy goods and services largely depends on its permanent income.

Question 3

Whether or not policymakers should try to make our society more egalitarian is largely a matter of:

Accepted Answer

Whether or not policymakers should try to make our society more egalitarian is largely a matter of political philosophy. Different political philosophies have different views on the role of government in reducing inequality and promoting equality. For example, some believe in a more limited government role, while others support more active government intervention. Economic efficiency, altruistic concern for others, and common sense may also play a role in considering this issue, but the fundamental question of whether or not to pursue greater societal equality is a matter of political philosophy.

Question 4

A permanent income theory suggests that a person's income is composed of predictable life cycle variation and:

Accepted Answer

According to the permanent income theory, a person's income is composed of predictable life cycle variation and random and transitory forces in the economy. This means that there will be fluctuations in income due to short-term factors such as changes in employment, unexpected expenses, or other economic shocks that do not reflect changes in the person's permanent income.

Question 5

Which of the following is a cause of movement of individuals among income classes?
(i) hard work
(ii) laziness
(iii) chance

Accepted Answer

All three factors - hard work, laziness, and chance - can influence an individual's movement among income classes. Hard work can lead to upward mobility, laziness can result in downward mobility, and chance events (like inheritance or economic downturns) can move individuals up or down regardless of their personal efforts.

Question 6

When incentives to earn income are distorted by income redistribution programs:

Accepted Answer

When incentives to earn income are distorted by income redistribution programs, all of the above can occur. Total income in an economy can fall, total aggregate utility in society can fall, and losses can exceed potential gains from greater equality of income. This is because income redistribution programs can discourage work effort, entrepreneurship, and investment, which can lead to a reduction in productivity, innovation, and economic growth. As a result, even though income redistribution programs may aim to reduce poverty and inequality, they may end up undermining the overall well-being of the society they intend to help.

Question 7

The life cycle effect characterises a lifetime income profile in which income:

Accepted Answer

The life cycle effect suggests that an individual's income rises as they gain more maturity and experience in their career, typically peaking before retirement and then declining. This concept is based on the idea that workers become more valuable and earn higher wages as they accumulate skills and experience over time.

Question 8

Which of the following reasons suggests that income-based measures of poverty are not ideal when considering the poverty rates of young people:

Accepted Answer

The answer of Which of the following reasons suggests that...

Question 9

An example of a transitory change in income is:

Accepted Answer

A transitory change in income is a temporary change in income that will not last long. Option A describes a permanent change that will be sustained due to the job promotion linked to education. Option C describes a recurring adjustment to salary, and therefore does not meet the criteria for a transitory change in income. Option B, on the other hand, describes a temporary increase in income for California orange growers due to an orange-killing frost in Florida.

Question 10

According to utilitarians, the ultimate objective of private and public actions is to:

Accepted Answer

According to utilitarian philosophy, the ultimate objective of private and public actions is to maximize the sum of individual utility, which means maximizing overall happiness and well-being. This approach prioritizes the greatest good for the greatest number of people, rather than an extreme focus on income redistribution or catering to the interests of a particular social class.

Question 11

Economic mobility refers to the:

Accepted Answer

Economic mobility refers to the movement of people among income classes. It refers to how easy it is for individuals or families to move up or down the income ladder over time. This movement can be influenced by factors such as education, job opportunities, and economic policies.

Question 12

The political philosophy according to which the government should choose policies that maximise the total utility of everyone in society is called:

Accepted Answer

Utilitarianism prioritizes the greatest good for the greatest number of people, which aligns with the idea of maximizing the total utility of everyone in society. The other options, such as libertarianism and Rawlsianism, prioritize individual rights and justice over total utility.

Question 13

Amy currently earns $80 000 a year, while John earns $30 000 a year.Suppose that both of their incomes are subject to diminishing marginal utility.From a utilitarian perspective taking a dollar from Amy and giving it to John will:

Accepted Answer

From a utilitarian perspective, redistributing income from a higher earner to a lower earner increases total utility because the marginal utility of income is higher for the lower earner.

Question 14

The concept of utility is fundamental to utilitarianism and describes the:

Accepted Answer

Utility refers to the level of satisfaction or happiness one derives from their circumstances, and is a key concept in utilitarianism as it aims to maximize overall happiness or utility for society as a whole. It is not about the storage or allocation of wealth, nor is it necessarily concerned with an optimal distribution of wealth.

Question 15

Which of the following household units are more likely than average to be living in poverty?
(i) couples without children
(ii) single people
(iii) sole one-parents with children

Accepted Answer

Single people and sole one-parents with children are statistically more likely to live in poverty compared to couples without children. Single individuals may have only one source of income, and sole one-parent families often face financial challenges due to having only one adult earner while also incurring the costs associated with raising children.

Question 16

Income mobility studies suggest that poverty:

Accepted Answer

Income mobility studies often show that poverty is not a long-term condition for the majority of families, indicating that many are able to move out of poverty over time.

Question 17

A person's permanent income is:

Accepted Answer

Permanent income is a concept developed by economist Milton Friedman, which refers to an individual's expected average income over a long period of time. It is often used to predict consumer spending behavior, as people are more likely to increase their spending if they expect their income to rise consistently over time. Therefore, choice D is the correct answer as it defines permanent income accurately.

Question 18

Permanent income is distributed between income groups ________:

Accepted Answer

Permanent income is a long-term average of income, whereas current income can fluctuate in the short-term. Therefore, permanent income tends to be more evenly distributed between income groups than current income.

Question 19

The utilitarian case for redistributing income is based on the assumption of:

Accepted Answer

The utilitarian case for redistributing income is based on the assumption of diminishing marginal utility, which means that each additional dollar earned is valued less and less as a person's income increases. With this assumption, redistribution of income can increase total happiness by taking money from those with higher incomes (who have a lower marginal utility for additional dollars) and giving it to those with lower incomes (who have a higher marginal utility for additional dollars).

Question 20

Diminishing marginal utility suggests that:

Accepted Answer

Diminishing marginal utility suggests that the more of a good or service one consumes, the less additional satisfaction they will receive from each additional unit consumed. Therefore, the poor, who have less money, will receive more satisfaction from the last dollar they spend compared to the rich, who already have a lot of money and may not receive much additional satisfaction from spending an extra dollar.

Quiz 21: Income Inequity and Poverty