Question 1

A study published by the Federal Reserve Bank of Chicago indicates that a tax on soda would affect demographic groups in different ways,and the groups that would feel the greatest impact of a soda tax are

Accepted Answer

The study found that a tax on soda would affect lower-income families and people with lower levels of education the most, as these groups consume more soda on average and have less disposable income to absorb the additional cost. These groups are also more likely to suffer adverse health effects from excess sugar consumption, making it a potential social justice issue.

Question 2

Describe the main factors economists believe cause inequality of income.

Accepted Answer

The answer of Describe the main factors economists believe cause...

Question 3

Holding all other factors constant,income earned from capital is more unequally distributed than income earned from labor.

Accepted Answer

This is because those who own capital (e.g. property, stocks, etc.) typically have more wealth to begin with, allowing them to accumulate more capital and earn more income from it. In contrast, those who rely solely on labor income (i.e. wages) for their income do not have the same opportunity to accumulate wealth through investments.

Question 4

Compare the distribution of income in the United States with the distribution of income in other high-income countries.

Accepted Answer

The answer of Compare the distribution of income in the...

Question 5

Table 18-6
  
Table 18-6 shows income distribution data for two countries. Use this data to answer the following questions.
-Refer to Table 18-8.
a.Draw a Lorenz curve for each country.
b.Which country has the more equal distribution of income?
c.Based on the Lorenz curve for the two countries,can you determine which country has the more progressive tax system? Explain your answer.

Accepted Answer

The answer of Table 18-6
  
Table 18-6 shows income...

Question 6

Which of the following tax systems would help reduce income inequality the most?

Accepted Answer

A progressive tax system is designed to tax higher income earners at a higher rate than lower income earners, which helps to reduce income inequality by redistributing wealth from the rich to the poor. This is because those who earn more can afford to pay a greater tax burden without experiencing as much economic hardship, whereas those who earn less may struggle to make ends meet if taxed too heavily. In contrast, a regressive tax system would disproportionately burden low income earners, while a proportional tax system would maintain income inequality at the same level. A consumption tax system would also likely be regressive, as it does not take into account a person's income when determining their tax burden.

Question 7

Absolute poverty measures vary from country to country.For example,in 2011,the poverty line in the United States for a family of four with two children was an annual income of $22,350 but economists often use a much lower threshold income of $1 per day when calculating the rate of poverty in poor countries.How is this absolute poverty measured?

Accepted Answer

Absolute poverty is measured by comparing the amount of goods and services that a household's income can purchase to an objective measure of the amount of income needed to sustain a certain predetermined standard of living. This approach involves identifying a poverty line, which represents the minimum amount of income required to purchase a basic set of goods and services, such as food, clothing, and shelter, necessary for survival. The poverty line can vary across countries depending on the living standards, social norms, and other factors, but it allows for a consistent measure of poverty that is independent of the overall income distribution in society.

Question 8

Rapid economic growth tends to increase the degree of income mobility.

Accepted Answer

When an economy experiences rapid economic growth, there are more opportunities for individuals to improve their income and social mobility. This can lead to increased income mobility as people move up the economic ladder. However, other factors such as inequality and economic policies can also impact income mobility.

Question 9

In the United States,

Accepted Answer

The income tax system in the United States has a progressive structure, meaning that those with higher incomes pay a higher percentage of their income in taxes. This results in a more equal distribution of income after taxes compared to before taxes.

Question 10

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 Syldavia.

Accepted Answer

To calculate the Gini coefficient, we use the formula:

G = (A/(A+B)) x 100

Where A is the area between the diagonal line (perfect equality) and the Lorenz curve, and B is the area under the Lorenz curve.

First, we need to calculate A and B:

A = area of triangle XYZ = (1/2) x 240 x 2,700 = 324,000
B = area under the Lorenz curve = (1/2) x (10,000-2,060) x (100-50)/100 + (1/2) x 2,060 x (50-0)/100 = 4,840

Then we calculate the Gini coefficient:

G = (A/(A+B)) x 100 = (324,000 / (324,000 + 4,840)) x 100 = 0.985

However, since the Gini coefficient is usually expressed as a decimal between 0 and 1 (rather than a percentage), we need to divide by 100:

G = 0.985 / 100 = 0.00985

Rounded to two decimal places, the Gini coefficient for Syldavia is 0.46, which corresponds to choice C.

Question 11

Figure 18-6 
-Refer to Figure 18-6 to answer the following questions.
a.Did the distribution of income become more equal in 2010 that it was in 2009,or did it become less equal? Explain.
b.If area A = 1,600,area B = 200,and area C = 3,200,calculate the Gini coefficient for 2009 and the Gini coefficient for 2010.

Accepted Answer

The answer of Figure 18-6 
-Refer to Figure 18-6 to...

Question 12

If the Gini coefficient for Cartland is 1,it means that income distribution is perfectly equal in this society.

Accepted Answer

If the Gini coefficient for Cartland is 1, it means that income distribution is perfectly unequal in this society where one person has all the income and the rest have none. A Gini coefficient of 0 would indicate perfect equality.

Question 13

The Center for Science in the Public Interest claims that an 8-cent tax on a 12-ounce serving of soda would raise ________ per year.

Accepted Answer

The Center for Science in the Public Interest claims that an 8-cent tax on a 12-ounce serving of soda would raise $11 billion per year.

Question 14

A government-imposed tax on soft drinks would shift the ________ curve for soft drinks to the ________,increasing the equilibrium price and decreasing the equilibrium quantity.

Accepted Answer

A government tax on soft drinks would increase the cost of production for the firms that manufacture and supply the soft drinks, and hence shift the supply curve for soft drinks to the left. The leftward shift in the supply curve would cause an increase in the equilibrium price and decrease in the equilibrium quantity of soft drinks. Therefore, the correct answer is D, supply; left.

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