Consider two countries: a) In the first country there are 1,000 individuals; among them 500 earn $20,000 per month and the remaining 500 earn $400 per month
b) In the second country there are 1,000 people; among them 500 earn $12,000 per month and the remaining 500 people earn $600 per month. Which of the two countries has more inequality and which country is poorer of the two?
The per capita income in the first country is equal to (500 × 20,000 + 500 × 400)/1,000 = $10,200.
The per capita income in the second country is equal to (500 × 12,000 + 500 × 600)/1000 = 6,300.
From the per capita income figures we can conclude that the second country is poorer than the first country.
Now, ratio of rich-to-poor incomes in the first country = 10,000,000/20,000 = 50. The same ratio in the second country = 6,000,000/30,000 = 20.
It is seen that the ratio of high earners income to low earners income is much higher in the first country. Thus, inequality is more in the first country.
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Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?
A) Booth was a well-known actor; the demand for his letters rose as wealthy actors attempted to buy them. B) Many people are more fascinated by villains and anti-heroes than by heroic figures. C) There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth. D) There is a surplus of letters written by Booth and a shortage of letters written by Lincoln.
If a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning negative economic profits, the firm should anticipate ________.
A) the market equilibrium price to decrease B) the market supply to increase C) new firms to enter the market D) the market equilibrium price to increase
A fluctuating rate of inflation
a. will cause a downturn in the housing sector b. redistributes income from creditors to debtors c. redistributes income from the employed to the unemployed d. was the problem that originally led to the creation of the Federal Reserve System e. interferes with long-run planning
A public good will:
A. be efficiently provided by the free market as long as its total benefits exceed its total costs. B. be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs. C. be provided in less than efficient quantities by the free market. D. be provided in efficient quantities by voluntary contributions.