Microeconomics Chapter 21 Analysis

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income inequality
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The unequal distribution of an economy’s total income among households or families.
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Ways to measure income inequality
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1. By Income category 2. Distribution by quintiles (fifths)
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Lorenz curve
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A curve showing the distribution of income in an economy. The cumulated percentage of families (income receivers) is measured along the horizontal axis and the cumulated percentage of income is measured along the vertical axis.
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gini ratio
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A nurmerical measure of the overall dispersion of income. =area between Lorenz curve and diagonal/total area below diagonal Lower ratios denote less inequality, higher suggest more inequality.
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income mobility
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Movement of individuals or households from one income quintile to another over time.
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noncash transfers
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Transfers that provide specific goods or services instead of cash.
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Causes of income inequality
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1. Ability 2. Education and training 3. Discrimination 4. Preferences and risks 5. Unequal distribution of wealth 6. Market power 7. Luck, connections and Misfortune
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Causes for increase in income inequality since 1975
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1. Greater demand of highly skilled workers 2. Demographic changes 3. International trade, immigration, and decline in unionism
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equality-efficiency trade off
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Greater income equality comes at the opportunity cost of reduced production and income. And greater production and income comes at the expense of less equality of income.
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poverty
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A condition in which a person or a family does not have the means to satisfy the basic needs for food, clothes, shelter and transportation. Means income currently earned income, transfer payments, past savings, and property owned.
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poverty rate
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The percentage of the population living in poverty
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entitlement programs
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Government programs such as social insurance, medicare and Medicaid that guarantee particular levels of transfer payments or noncash benefits to all who fit the programs’ criteria.
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social insurance programs
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Partially replace earnings that have been lost due to retirement, disability or temporary unemployment. Also provides health insurance for the elderly. Eg. Social security, medicare and unemployment compensation
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social security
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A social insurance program. IT is a federal pension program that replaces part of the earnings lost when workers retire, become disabled, or die. Funded by compulsory payroll taxes levied on employers and employees.
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Medicare
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A social insurance program. It is a federal insurance program that provides health insurance benefits to those 65 years and older and those who are disabled. Financed by payroll taxes on employers and employees.
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unemployment compensation
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A social insurance program. A federal-state social insurance program that makes income available to workers who are unemployed. It is financed by a relatively small payroll tax, paid by employers, which varies by state and by the size of the firm’s payroll.
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public assistance programs
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A social insurance program. They provide benefits to people who are unable to earn income because of permanent disabling conditions or who have no or very low income and also have dependent children. Funded out of general tax revenues and are regarded as public charity.
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Supplemental Security Income program
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Many needy persons who do not quality for social insurance programs are assisted through this. It is a federal program (financed by general tax revenues) that provides a uniform, nationwide minimum income for the blind and disabled who are unable to work and do not qualify for social security.T
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Temporary Assistance to Needy Families
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The basic welfare program for low income families in the U.S. The program is financed through general federal tax revenues and consists of lump-sum payments of federal money to states to operate their own welfare and work programs.
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Supplemental nutrition assistance program (food stamp program)
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A federal program (financed through general tax revenues) that permits eligible low income persons to obtain vouchers that can be used to buy food. Designed to provide all low income Americans with a nutritionally adequate diet. Eligible households receive monthly deposits of spendable electronic money on specialized debit cards known as electronic benefit transfer cards.
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Medicaid
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A federal program (financed by general tax revenues) that provides medical benefits to people covered by the SSI and TANF programs. Helps to finance the medical expenses of individuals participating in those programs.
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Earned-income tax credit
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A refundable federal tax credit prodivded to low-income wage earners to supplement their families’ incomes and encourage work. Available for low-income working families with or without children.
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discrimination
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The practice of according people inferior treatment. Eg. in hiring, occupational access, education and training, promotion, wage rate or working conditions.
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taste for discrimination model
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Examines predjudice using the emotion-free language of demand theory. It views discrimination as resulting from a preference or taste for which the discriminator is willing to pay. It assumes that for whatever reason, prejudiced people experience a subjective or psychic cost whenever they interact with those they are biased against.
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Discrimination coefficient
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A measure of the cost or disutility of prejudice; the monetary amount an employer is willing to pay to hire a preferred worker rather than a nonpreferred worker of the same ability.
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statistical discrimination
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People are judged on the basis of the average characteristics of the group to which they belong, rather than their own personal characteristics or productivity.
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occupational segegation
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The crowding of women, African Americans and certain ethnic groups into less desirable, lower paying occupations. It is still apparent in the U.S. economy.

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