Question 1

The equality-efficiency trade-off suggests that

Accepted Answer

A)   welfare programs stimulate incentives to work.
B)   inefficiencies result when incentives to produce are reduced.
C)   noncash transfers are superior to cash transfers.
D)   economic growth is the best means of reducing poverty.E) C) and D)
F) B) and C)

Question 2

(Consider This)  The main focus of the vignette "Slicing the Pizza" is the

Accepted Answer

A)   equality-efficiency trade-off.
B)   principal-agent problem.
C)   impact of market power on economic efficiency.
D)   the highly unequal distribution of U.S. wealth.E) C) and D)
F) A) and C)

Question 3

In the pizza analogy for income distribution, the pizza would shrink because

Accepted Answer

A)   the burden for the consumer would be greater than the burden for the producer.
B)   the risk of investment would be greater than the potential return on investment.
C)   there would be inequitable treatment of people.
D)   redistribution would reduce incentives to work.E) All of the above
F) A) and D)

Question 4

Which of the following is not a basic difference between Medicare and Medicaid?

Accepted Answer

A)   Medicare is financed by a payroll tax, while Medicaid is financed by general tax revenues.
B)   Medicare is a federal program, while Medicaid is a state-government program.
C)   Medicare is mostly based on age, while Medicaid is mostly based on income.
D)   Medicare is a social insurance program, while Medicaid is a public assistance program.E) B) and C)
F) C) and D)

Question 5

Income mobility

Accepted Answer

A)   makes lifetime income inequality among income receivers in the United States less than income inequality in any single year.
B)   is less in the United States than in most developing nations.
C)   refers to the movement of wage earners from one job to another.
D)   reduces the total percentage of households in the lowest quintile of the income distribution over time.E) B) and C)
F) A) and D)

Question 6

Discrimination

Accepted Answer

A)   affects the distribution of domestic output and income but not its total size.
B)   is shown as some point outside of an economy's production possibilities curve.
C)   places the economy at some point inside of its production possibilities curve.
D)   affects the total size of domestic output and income but not its distribution.E) All of the above
F) A) and D)

Question 7

The percentage of total before-tax household income received by the lowest 20 percent of households in 2014 was about percent, while the top 20 percent received about percent.

Accepted Answer

A)   1; 30
B)   3; 50
C)   8; 60
D)   12; 40E) A) and D)
F) A) and C)

Question 8

Which of the following Gini ratios indicates the lowest degree of income inequality?

Accepted Answer

A)   0.71
B)   0.55
C)   0.31
D)   0.45E) A) and B)
F) A) and C)

Question 9

Suppose that a prejudiced African-American employer has a discrimination coefficient of $5/hour. Suppose also that the market wage rate is $20/hour for African- American workers, and $18/hour for Hispanic workers. In this case, the employer will

Accepted Answer

A)   hire Hispanic workers
B)   not hire Hispanic workers unless their wage rate falls to $5/hour.
C)   not hire Hispanic workers regardless of wage rate.
D)   not hire Hispanic workers unless their wage rate falls to $15/hour.E) B) and C)
F) All of the above

Question 10

Suppose Rita obtains 10 units of utility from the last dollar of income received by her, and Joseph obtains 6 units of utility from the last dollar of his income. Assume both Joseph and Rita have the same capacity to derive utility from income. Those who favor an equal distribution of income would

Accepted Answer

A)   advocate redistributing income from Joseph to Rita.
B)   advocate redistributing income from Rita to Joseph.
C)   be content with this distribution of income between Rita and Joseph.
D)   argue that any redistribution of income between them would increase total utility.E) B) and D)
F) A) and B)

Question 11

For which of the following income-maintenance programs is aggregate spending the greatest?

Accepted Answer

A)   Medicare
B)   Social Security
C)   Unemployment compensation
D)   TANFE) B) and D)
F) None of the above

Question 12

Suppose that white workers are getting paid $21/hour, while similarly productive African-American workers are getting paid $18/hour. A prejudiced white employer with a discrimination coefficient of $24/hour will

Accepted Answer

A)   hire African Americans only if their wage rate falls to $3/hour.
B)   hire African-American workers.
C)   not hire African Americans at all, even if they offer to work for free.
D)   not hire African Americans, unless they work for free.E) A) and B)
F) C) and D)

Question 13

Which of the following groups would we expect to have the highest poverty rate?

Accepted Answer

A)   Hispanic married households
B)   elderly Asian households
C)   white households headed by females
D)   African-American households headed by femalesE) C) and D)
F) All of the above

Question 14

The Lorenz curve is a graph that relates income to household spending.

Accepted Answer

A) True 
 B)False

Question 15

Suppose Copernicus Corporation hires Damon Danielson rather than Elmer Ellison, simply because Damon is a graduate of an Ivy League school, while Elmer is a graduate of a small public university. Elmer is actually more qualified than Damon. This is an example of

Accepted Answer

A)   statistical discrimination.
B)   irrational behavior.
C)   monopsony exploitation.
D)   human-capital discrimination.E) A) and B)
F) A) and C)

Question 16

Suppose an employer is biased against African Americans. If his discrimination coefficient is $2, the employer will

Accepted Answer

A)   randomly hire African-American and white workers if the actual African-American-white wage differential is more than $2.
B)   randomly hire African-American and white workers if the actual African-American-white wage differential is less than $2.
C)   hire only African Americans if the actual African-American-white wage differential is less than $2.
D)   hire only whites if the actual African-American-white wage differential is less than $2.E) B) and C)
F) A) and D)

Question 17

The wages and salaries that people earn differ partly because of differences in

Accepted Answer

A)   wealth.
B)   ability.
C)   Social Security payments.
D)   in-kind transfer payments.E) B) and C)
F) A) and D)

Question 18

A reduction in the collective discrimination coefficients of employers will increase the wage rate of those discriminated against but reduce their employment.

Accepted Answer

A) True 
 B)False

Question 19

Insurance companies require male drivers under age 25 to pay higher insurance rates than female drivers under age 25. Craig Raymond, however, is a safer driver than the average female driver under age 25. Craig's higher insurance rate reflects

Accepted Answer

A)   monopoly power.
B)   statistical discrimination.
C)   the insurance firm's taste for discrimination.
D)   human-capital discrimination.E) B) and C)
F) A) and D)

Question 20

Some economists prefer to look at the distribution of consumption rather than that of income. A Review of Economic Studies article in 2006 reported that consumption inequality in the U.S. is

Accepted Answer

A)   about the same as the income inequality.
B)   worse than the income inequality.
C)   less severe than the income inequality.
D)   highly unstable from one year to the next.E) None of the above
F) C) and D)

Exam 23: Income Inequality, Poverty, and Discrimination

The percentage of total before-tax household income received by the lowest 20 percent of households in 2014 was about percent, while the top 20 percent received about percent.

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Suppose Copernicus Corporation hires Damon Danielson rather than Elmer Ellison, simply because Damon is a graduate of an Ivy League school, while Elmer is a graduate of a small public university. Elmer is actually more qualified than Damon. This is an example of

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Suppose an employer is biased against African Americans. If his discrimination coefficient is $2, the employer will

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For which of the following income-maintenance programs is aggregate spending the greatest?

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The Lorenz curve is a graph that relates income to household spending.

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Income mobility

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Suppose Rita obtains 10 units of utility from the last dollar of income received by her, and Joseph obtains 6 units of utility from the last dollar of his income. Assume both Joseph and Rita have the same capacity to derive utility from income. Those who favor an equal distribution of income would

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In the pizza analogy for income distribution, the pizza would shrink because

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Which of the following is not a basic difference between Medicare and Medicaid?

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Suppose that a prejudiced African-American employer has a discrimination coefficient of $5/hour. Suppose also that the market wage rate is $20/hour for African- American workers, and $18/hour for Hispanic workers. In this case, the employer will

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(Consider This) The main focus of the vignette "Slicing the Pizza" is the

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Which of the following groups would we expect to have the highest poverty rate?

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Suppose that white workers are getting paid $21/hour, while similarly productive African-American workers are getting paid $18/hour. A prejudiced white employer with a discrimination coefficient of $24/hour will

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The wages and salaries that people earn differ partly because of differences in

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Insurance companies require male drivers under age 25 to pay higher insurance rates than female drivers under age 25. Craig Raymond, however, is a safer driver than the average female driver under age 25. Craig's higher insurance rate reflects

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A reduction in the collective discrimination coefficients of employers will increase the wage rate of those discriminated against but reduce their employment.

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The equality-efficiency trade-off suggests that

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Some economists prefer to look at the distribution of consumption rather than that of income. A Review of Economic Studies article in 2006 reported that consumption inequality in the U.S. is

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Discrimination

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Which of the following Gini ratios indicates the lowest degree of income inequality?

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