Economic Inequality and Policy Impact Quiz
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Questions and Answers

What is a primary goal of redistributive government policies?

  • To minimize the role of taxes in the economy
  • To ensure a more equal distribution of disposable income (correct)
  • To increase market Gini coefficients
  • To enhance the power of institutions over economic activities

Which of the following concepts best describes the share of income retained by farmers after a policy change?

  • Reservation point
  • Disposable income
  • Economic rents (correct)
  • Joint surplus

What is the purpose of mapping and measuring inequality using tools like the Gini coefficient?

  • To predict changes in property rights
  • To assess employee productivity in firms
  • To identify market shares of firms
  • To evaluate the effectiveness of economic policies (correct)

How do institutions like property rights and labor laws contribute to economic outcomes?

<p>They help limit the power of coercion in extracting economic rents (B)</p> Signup and view all the answers

What is the significance of understanding both market and disposable income inequality?

<p>It facilitates a more comprehensive economic analysis (C)</p> Signup and view all the answers

What does MRS equal to in optimal decision-making?

<p>Marginal Rate of Substitution (B)</p> Signup and view all the answers

What does Economic Rent represent in this context?

<p>Unearned income above survival needs (D)</p> Signup and view all the answers

Why does the landlord gain a majority of the surplus in this scenario?

<p>They have a higher bargaining power than the workers. (A)</p> Signup and view all the answers

What is the role of property rights in labor exploitation?

<p>They limit exploitation by allowing workers to refuse unfair deals. (D)</p> Signup and view all the answers

What constraint must the producer meet to survive?

<p>Biological survival constraint (B)</p> Signup and view all the answers

Angela's reservation option primarily serves to:

<p>Define her minimum acceptable offer. (B)</p> Signup and view all the answers

What impact do farmers lobbying for rights have on working conditions?

<p>They can result in legal limits on work hours. (B)</p> Signup and view all the answers

What does the term 'MRT' refer to in this context?

<p>Marginal Rate of Transformation (A)</p> Signup and view all the answers

What does a Gini coefficient value of 0 indicate?

<p>Perfect equality (D)</p> Signup and view all the answers

What does the Gini coefficient measure?

<p>The distribution of resources among the population (A)</p> Signup and view all the answers

What does the Lorenz Curve illustrate?

<p>Income distribution across different population groups (C)</p> Signup and view all the answers

Which statement about the Gini coefficient is true?

<p>Higher values indicate greater inequality. (A)</p> Signup and view all the answers

What was the outcome of the land reforms introduced by the Left Front government in Bangladesh?

<p>Farm production per unit of land increased. (C)</p> Signup and view all the answers

What percentage of their crop were farmers allowed to keep under the Operation Barga reforms?

<p>75% (D)</p> Signup and view all the answers

What limitation does the Lorenz Curve have?

<p>It does not measure overall wealth of a country. (C)</p> Signup and view all the answers

Why was the land reform in Bangladesh not considered Pareto efficient?

<p>Some parties were made worse off during the reforms. (A)</p> Signup and view all the answers

What effect does better legal protection have on workers' willingness to accept job offers?

<p>It decreases their willingness to accept poor offers. (B)</p> Signup and view all the answers

What does the expansion of the feasibility frontier imply for production?

<p>Everyone's potential production increases. (C)</p> Signup and view all the answers

How do laws and institutions impact reservation prices?

<p>They shape the minimum offers that people are willing to accept. (A)</p> Signup and view all the answers

What is the consequence of Pareto improvements in negotiation?

<p>Some individuals benefit while no one is worse off. (D)</p> Signup and view all the answers

What role does bargaining power play in negotiations?

<p>It helps determine who gets the larger share of surplus. (D)</p> Signup and view all the answers

Which factors contribute to inequality among individuals?

<p>Physical wealth, human capital, and technological endowments. (B)</p> Signup and view all the answers

What happens to workers on zero-hour contracts in terms of bargaining power?

<p>They are often in weaker bargaining positions. (D)</p> Signup and view all the answers

What is the impact of technological endowments on individual opportunities?

<p>They can provide significant advantages in productivity and income. (A)</p> Signup and view all the answers

How does a stronger relationship with stakeholders affect company planning?

<p>It enables a focus on longer-term planning. (B)</p> Signup and view all the answers

What characterizes a cooperative firm?

<p>Workers own the firm and can hire and fire managers. (A)</p> Signup and view all the answers

What is a key feature of the gig economy?

<p>Connection between freelancers and customers through a digital platform. (B)</p> Signup and view all the answers

What principle is illustrated by the statement 'MRS = MRT' in profit maximization?

<p>The balance between consumer preference and production efficiency. (B)</p> Signup and view all the answers

What is the effect of economies of scale on production strategy?

<p>Decreases the average cost per unit with increased production. (A)</p> Signup and view all the answers

How do diseconomies of scale affect a firm’s production?

<p>They cause an increase in average costs as production volume grows. (A)</p> Signup and view all the answers

What is the main implication of an indifference curve's position?

<p>It represents varying levels of consumer satisfaction. (A)</p> Signup and view all the answers

What occurs during economic shocks involving inflation?

<p>Production costs tend to increase, affecting supply strategies. (C)</p> Signup and view all the answers

What does the term 'reservation wage' refer to?

<p>The minimum wage a worker is willing to accept for a job. (B)</p> Signup and view all the answers

What is the primary purpose of offering employment rents?

<p>To increase worker motivation and retention. (A)</p> Signup and view all the answers

How does the disutility of effort impact a worker's decision-making?

<p>It influences the level of effort workers are willing to provide. (A)</p> Signup and view all the answers

Why is a large employment rent beneficial for a firm?

<p>It signifies that the worker sees high value in retaining their job. (C)</p> Signup and view all the answers

What happens to the cost of job loss as wages increase?

<p>It increases, making workers more motivated to keep their job. (D)</p> Signup and view all the answers

What is one of the implications of the Best Response Curve?

<p>There is a direct relationship between wage offered and worker effort. (A)</p> Signup and view all the answers

Which of the following is a consequence of providing non-wage benefits?

<p>Benefits contribute positively to overall job satisfaction. (D)</p> Signup and view all the answers

What factor significantly influences the calculation of employment rent?

<p>The wage minus reservation wage and disutility of effort. (A)</p> Signup and view all the answers

Flashcards

Redistributive Policies

Government policies like taxes and social welfare programs that aim to create a more equal distribution of income in society.

Disposable Income

The income individuals have left after paying taxes and receiving government transfers (like welfare).

Market Gini

Measures income inequality before government intervention, showing pure market forces.

Disposable Gini

Measures income inequality after government intervention, showing the impact of policies.

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Incomplete Contracts

Contracts that cannot fully anticipate all future contingencies and potential conflicts of interest.

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Reservation Price

The minimum offer someone is willing to accept for a deal, like a job or trade. It's their bottom line.

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Pareto Improvement

A change that makes at least one person better off without making anyone worse off, like getting a better deal without anyone losing.

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Production Frontier

The limit of what can be produced with available resources and technology, like a factory's maximum output.

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How institutions affect bargaining power

Laws and regulations set the rules of the game, influencing who has more leverage in negotiations, like minimum wage laws.

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Preferences and bargaining power

What individuals want (their preferences) and how well they can negotiate (their power) determine the outcome of a deal.

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Sources of Inequality

Unequal distribution of wealth, skills, access to technology, income, and institutional rules contribute to inequality.

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Physical Wealth Endowments

Assets like land, houses, and stocks that create wealth and affect bargaining power.

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Human Capital

Skills and knowledge acquired through education, training, and experience, which contribute to earning potential.

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Reservation Wage

The minimum wage a worker is willing to accept for a job, based on the value of their next best option (e.g., other employment, unemployment benefits).

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Employment Rent

The difference between a worker's current wage and their reservation wage, including the disutility of effort. It represents the value the worker places on their current job.

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Disutility of Effort

The discomfort or negative feelings associated with work, including factors like stress, physical exertion, and long hours.

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Worker Retention

Keeping employees in a company by offering competitive wages and benefits, reducing hiring and training costs.

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Recruitment

Attracting a pool of potential employees by offering competitive wages and benefits.

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Cost of Job Loss

The potential financial and personal consequences of losing a job, including lost income, benefits, and job search effort.

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Best Response Curve

A graphical representation that shows the optimal effort level a worker will choose for each wage offered by their employer.

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Employment Game

A model that describes the dynamic interaction between employers who set wages and workers who choose effort levels, where both parties aim to maximize their own outcomes.

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MRS = MRT

The point where the marginal rate of substitution (MRS) equals the marginal rate of transformation (MRT) represents the optimal allocation of resources. This is where the individual maximizes their satisfaction given their constraints.

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Economic Rent

Economic rent is the extra income earned above and beyond what an individual would receive in their next best alternative. It's essentially unearned income.

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Biological Survival Constraint

A biological survival constraint refers to the minimum amount of resources a person needs to survive. It's the bare minimum for sustenance.

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Reservation Option

A reservation option is the minimum acceptable deal an individual is willing to accept. It's their fallback position if no agreement is reached.

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Pareto Efficiency

A situation is Pareto efficient when it's impossible to make one person better off without making someone else worse off. It's a state of optimal resource allocation.

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Bargaining Power

Bargaining power refers to the ability of an individual or group to influence the outcome of negotiations in their favor. It's a measure of their leverage.

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Exploitation

Exploitation occurs when one party takes advantage of another's vulnerability to gain an unfair advantage. It involves extracting more value than deserved.

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Joint Surplus

Joint surplus is the total economic rent earned by all parties involved in a transaction. It's the sum of their individual gains.

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Gini coefficient

A measure of income inequality in a society. It ranges from 0 (perfect equality) to 1 (extreme inequality), with a higher value indicating greater inequality.

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How does the Gini coefficient work?

It compares the actual income distribution to a perfectly equal distribution, where everyone gets the same share. The greater the difference, the higher the Gini coefficient.

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What does the Gini coefficient NOT tell us?

It doesn't tell us about the overall wealth of a country - only how income is distributed. It cannot tell us where the concentration of wealth lies.

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Lorenz curve

A graphical representation showing income distribution across a population. It plots the cumulative percentage of income against the cumulative percentage of the population.

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What does a straight line on the Lorenz curve mean?

It means perfect income equality. Every household has the same income share.

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What happens to the Lorenz curve with greater inequality?

The curve bends away from the diagonal line, showing a larger gap between the actual income distribution and a perfectly equal one.

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Pirate ships and income equality

Pirate ships often distributed loot more equally among their crew compared to the British Navy, illustrating how different societies can have varying degrees of income distribution.

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Operation Barga in Bangladesh

A land reform policy introduced in 1978 that aimed to improve the situation for farmers by giving them more control over their produce and land, and preventing evictions.

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Economies of Scale

The phenomenon where the average cost per unit decreases as the number of units produced increases. This happens because fixed costs are spread over a larger number of units, leading to lower average costs.

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Diseconomies of Scale

The situation where the average cost per unit increases as the number of units produced increases. This occurs when the cost of additional inputs increases faster than the increase in output, leading to higher costs per unit.

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Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded at that price. It shows how much consumers are willing to buy at different prices.

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Elasticity of Demand

A measure of how responsive the quantity demanded of a good is to changes in its price. If a small change in price leads to a big change in quantity demanded, the demand is considered elastic.

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Supply Curve

A graphical representation of the relationship between the price of a good or service and the quantity supplied at that price. It shows how much producers are willing to offer at different prices.

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Equilibrium Price

The price at which the quantity demanded and the quantity supplied are equal, leading to no surplus or shortage in the market.

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Monopoly Rents

The extra profits that a monopolist can earn because they are the only seller in the market. They can charge a higher price than a competitive firm.

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Economic Shocks

Unexpected events that disrupt the normal functioning of the economy, like a natural disaster or a sudden change in government policy.

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Description

Test your understanding of economic inequality and the effects of redistributive government policies. This quiz covers concepts like income share, the Gini coefficient, and the role of institutions in economic outcomes. Engage with critical questions that assess your comprehension of these important economic themes.

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