Define the following terms and explain their importance to the study of economics.
a. poverty line
b. economic discrimination
c. optimal inequality
d. negative income tax
What will be an ideal response?
a. The poverty line is an amount of income below which a family is considered “poor.” It is a beginning point in the discussion of income distribution.b. Economic discrimination occurs when equivalent factors of production receive different payments for equal contributions to output. It is a source of inefficiency in the economy and (in pure competition) will tend to be eliminated. Firms that practice economic discrimination will have lower profits than other firms and will be forced to end discrimination or go out of business if they try to continue.c. The amount of inequality is based on the idea that there is a trade-off between equality and efficiency. Reducing inequality may, therefore, reduce the efficiency in the economy, reducing GDP, and so on.d. The negative income tax is in general a plan (with several suggested variations) to attempt to reconcile equity and efficiency in approaching the problems of low family incomes, earnings incentives, and the role of taxes. A negative tax guarantees a minimum level of income through government supplements, but the supplements are reduced at a consistent rate as household earnings increase.
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A) shift rightward. B) not shift because the society moves from a point inside the frontier to a point on the frontier. C) shift leftward. D) not shift because the society moves from one point on the frontier to a point inside the frontier. E) not shift because the society moves from one point on the frontier to a point outside the frontier.
If income rises from $1,000 to $1,400 and consumption rises from $800 to $1,168, the marginal propensity to consume is __________ percent
A) 8 B) 85 C) 15 D) 92
Air pollution is an example of a negative externality.
Answer the following statement true (T) or false (F)
Government purchases include spending by federal, state, and local governments on:
A. final goods and services. B. consumer durables, nondurables, and services. C. stocks, bonds, and other financial instruments. D. capital goods, residential housing, and changes in inventories.