Why do societies face a tradeoff between the size of the economic pie and the degree of equality with which it is shared?
What will be an ideal response?
A person's share of the economic pie is determined by his or her income. To increase the degree of equality, income must be redistributed away from richer people and towards poorer people. Income is transferred from the rich to the poor by means of taxes. Taxes discourage work and saving. Because people work less, the nation's output decreases. When saving decreases, so does investment in capital, which also decreases the nation's output. Thus taxes that redistribute income in order to make for a more equal income distribution decrease the nation's output, that is, shrink the economic pie.
You might also like to view...
The figure above shows the market for coffee. If 30 pound of coffee a month are available, the ________ price that consumers are willing to pay for the last pound is ________
A) maximum; $4.00 B) minimum; $4.00 C) maximum; $2.50 D) minimum; $2.50
Which of the following holds true at the chosen level of output in the long run for firms in a perfectly competitive market?
A. P > MC B. P = minimum AVC C. MR = MC D. MR > MC
Social Security was established
a. in the 1930s to provide retirement income to those with a work history b. in the 1930s to provide jobs for the unemployed c. in the 1930s to provide health insurance d. in the 1960s to provide retirement income to those with a work history e. in the 1960s to provide health insurance
If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as
a. unstable. b. relatively inelastic. c. relatively elastic. d. of unitary elasticity.