Chapter 20 Notes - Chapter 20 Notes Income inequality and...

Info icon This preview shows pages 1–3. Sign up to view the full content.

Chapter 20 Notes: Income inequality and Poverty A person’s earnings depend on supply and demand for that person’s labor B/c labor earnings make up ¾ of the total income in US economy, the factors that determine wages are also largely responsible for determining how the economy’s total income is distributed among various members of society. o Determines who is rich and who is poor Governments can sometimes improve market outcomes Many economists believe that the government should redistribute income to achieve greater equality. When the government enacts policies to make the distribution of income more equitable, it distorts incentives, alters behavior, and makes the allocation of resources less efficient. The Measurement of Inequality How much inequality is in our society? How many people live in poverty? What problems arise in measuring the amount of inequality? How often do people move among income classes? US income inequality To examine differences in the income distribution over time economists use the share of total income that each group of families received in selected years. o See table pg 433 Rises in Inequality o Increases in international trade with low-wage countries o Changes in technology have reduced the demand for unskilled labor & raise the demand for skilled labor Wages of unskilled worked have fallen Inequality around the world How does the amount of inequlity in the US compare to that of other countries?
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

o Hard to answer o Not enough data o Not every country collects data same way o When there is a difference in two countries it can never before sure if it reflects a true difference in the economies or merely a difference in the way data is collected. o See table 3 pg 434 o When countries are ranked on inequality the US is in the middle It has more income inequality than other economically advanced countries (japan, Germany, Canada) but has more equal distribution than less advanced countries. The Poverty Rate Poverty rate: percentage of the population whose family income falls below an absolute level called the poverty line. Poverty line: an absolute level of income set by the federal gov for each family size below which a family is deemed to be in poverty o If the U.S. government determines that the cost of feeding an urban family of six is $6,000 per year, then the official poverty line for a family of that type is 18,000. Because the poverty line is absolute rather than relative, more families are pushed above it as economic growth pushed the entire income distribution upward. Since 1973 the poverty rate has not declined o Due to increasing inequality o Economic growth has raised the income of the typical family but has prevented the poorest families from sharing this prosperity Poverty does not affect everyone with equal frequency o RACE: Blacks/Hispanics are about three times more likely to live in pov that whites o
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern