Ch18 - CHAPTER 1 8 Economic Inequality After studying this...

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Economic Inequality CHAPTER 18
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After studying this chapter you will be able to Describe the inequality in income and wealth in the United States and the trends in inequality Explain the features of the labor market that contribute to economic inequality Describe the scale of income redistribution by government
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Rags and Riches Homelessness and abject poverty exists alongside extreme wealth. What determines the distribution of economic well-being? How much redistribution does government do to limit extreme poverty?
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Measuring Economic Inequality The census bureau defines a household’s income as money income , which equals market income plus cash payments to households by the government. Market income equals wages, interest, rent, and profit earned by the household in factor markets, before paying income taxes.
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Measuring Economic Inequality Quintile Income range Number in  Class Percentage in  Class Lowest Less than $19,000 Second $19,001 to $36,000 Third $36,001 to $57,000 Fourth $57,001 to $92,000 Fifth Greater than $92,000 Total 100
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Measuring Economic Inequality The Distribution of Income Figure 18.1 shows the distribution of income across the 113 million households in the United States in 2005.
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Measuring Economic Inequality The mode income is the most common income and was about $13,000. The median income is the level of income that separates the population into two groups of equal size and was $46,326. The mean income is the average income and was $63,344.
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Measuring Economic Inequality A distribution in which the mean exceeds the median and the median exceeds the mode is positively skewed , which means it has a long tail of high values. The distribution of income in the United States is positively skewed.
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Measuring Economic Inequality Figure 18.2 shows the distribution of income shares for the United States in 2005.
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Measuring Economic Inequality In 2005: The poorest 20% of households received only 3.4% of the total income. The middle 20% received 14.6% of total income. The richest 20% received 50.4% of total income.
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Measuring Economic Inequality The Income Lorenz Curve The income Lorenz curve graphs the cumulative percentage of income earned against the cumulative percentage of households. Figure 18.3 shows the income Lorenz curve for the income shares in Figure 18.2.
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Measuring Economic Inequality The vertical axis of a Lorenz curve is the cumulative percentage of total income. The horizontal axis is the cumulative percentage of households.
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If everyone has the same income, the income Lorenz curve is a 45 degree line from the lower left corner to the upper right corner. This line is called the line of equality . The Lorenz curve
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This note was uploaded on 04/29/2009 for the course ECON 103 taught by Professor Holt during the Spring '08 term at George Mason.

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Ch18 - CHAPTER 1 8 Economic Inequality After studying this...

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