Income and Wealth Distribution Quiz

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Questions and Answers

What is the main reason why the government should intervene in inequality, according to the provided text?

To ensure everyone has equal opportunities regardless of their background.

To prevent poverty from rising.

To redistribute wealth and resources to achieve a more equitable society. (correct)

To create a more competitive market environment.

Which of the following is NOT a common factor contributing to poverty?

Winning the lottery (correct)

Losing a job

Divorce

Medical issues

How does relative poverty differ from absolute poverty?

Relative poverty accounts for the effects of both economic growth and inequality, while absolute poverty only considers inequality.

Relative poverty considers only the effects of inequality, while absolute poverty considers both growth and inequality.

Relative poverty measures the fraction of the population with income below a poverty threshold fixed relative to the median income, while absolute poverty measures the fraction of people with income below a fixed poverty threshold. (correct)

Relative poverty measures the fraction of people with income below a fixed poverty threshold, while absolute poverty measures the fraction of people with income below a threshold relative to the median income.

What is the relationship between inequality and intergenerational mobility, as stated in the text?

Countries with more unequal levels of income generally have lower levels of intergenerational mobility. (D) Signup and view all the answers

Which of the following statements about poverty in the US is TRUE according to the text?

The US has successfully eradicated absolute poverty. (C) Signup and view all the answers

What is the defining difference between income and wealth?

Income is the amount of money earned over a period of time, while wealth is the total value of assets accumulated. (A) Signup and view all the answers

What is the approximate percentage of wealth controlled by the top 10% of individuals in the US?

70% (A) Signup and view all the answers

Why is the median spell of poverty for those currently in poverty significantly longer than for those who have escaped poverty?

People who escape poverty often return to poverty due to economic instability. (A) Signup and view all the answers

Which of the following factors is NOT directly correlated with high income mobility?

High population density (C) Signup and view all the answers

What does the term 'intergenerational mobility' refer to in this context?

The ability of people to move between different socioeconomic classes. (B) Signup and view all the answers

In comparing income mobility across major US cities, what trend has been observed?

Mobility is generally consistent across all major cities. (C) Signup and view all the answers

Which group of people is LESS likely to experience poverty, according to the text?

Elders (A) Signup and view all the answers

Which of the following statements about the US income mobility compared to other countries is accurate?

The US has worse income mobility than most other developed countries. (D) Signup and view all the answers

What does the income distribution graph typically depict?

A significant concentration of income in the hands of the top earners. (D) Signup and view all the answers

According to the content, what is the approximate percentage of total income earned by the top 1% of earners in the US in 2017?

21.5% (C) Signup and view all the answers

What is a primary factor influencing the debate about the extent of income inequality in recent years?

The changing definition of what constitutes "income" over time. (B) Signup and view all the answers

Which of the following is NOT a reason why the government might intervene in a market economy?

Increased competition (A) Signup and view all the answers

Which of the following is an example of adverse selection in the insurance market?

A person with a pre-existing health condition buying health insurance (A) Signup and view all the answers

Which of the following is an example of moral hazard in the insurance market?

A person driving recklessly after buying car insurance (D) Signup and view all the answers

What is the 'leaky bucket' analogy used to describe?

The negative consequences of government intervention (A) Signup and view all the answers

What is the main reason why private insurance markets may not be able to provide social insurance?

Both adverse selection and moral hazard (A) Signup and view all the answers

Why might the government choose to use tax revenue to redistribute wealth?

To reduce the wealth gap (B) Signup and view all the answers

What is the 'insurance death spiral'?

A cycle of rising insurance premiums and riskier individuals (A) Signup and view all the answers

One potential negative consequence of government intervention in the economy is:

Reduced incentive for individuals to work (B) Signup and view all the answers

When the price of a substitute good increases, what happens to the demand for the original good?

Demand for the original good increases. (C) Signup and view all the answers

Which of the following is NOT an example of a network effect?

The decreased value of a crowded public park during peak hours. (A) Signup and view all the answers

What is the effect on demand when the price of a complementary good increases?

Demand for the original good decreases. (D) Signup and view all the answers

If you expect the price of a specific item to decrease next month, what would likely happen to the demand for that item today?

Demand would decrease significantly. (A) Signup and view all the answers

Which of the following is NOT an example of a good subject to a congestion effect?

A social media platform with a large user base. (C) Signup and view all the answers

How does a change in the number of buyers in a market affect market demand?

It changes market demand. (C) Signup and view all the answers

Why is the demand for a good like English higher than other languages?

English is spoken in more countries than other languages. (A) Signup and view all the answers

Which of the following statements BEST describes the relationship between network effects and congestion effects?

They are opposites, where one increases value and the other decreases value. (C) Signup and view all the answers

When a government intervenes with the economy, what are the two most common reasons for this intervention?

Redistribution and Market Failures (A) Signup and view all the answers

What does the term 'equity' encompass?

Ensuring everyone has equal income (A) Signup and view all the answers

What is the result when a government prioritizes equity over efficiency?

Higher tax rates for high-income earners and potential decreases in output (C) Signup and view all the answers

What is the primary concern when a government emphasizes efficiency over equity?

Maximizing economic output and productivity (A) Signup and view all the answers

How does the concept of 'economic surplus' relate to decision making?

It highlights the difference between costs and benefits (A) Signup and view all the answers

What is the main idea behind the cost-benefit principle?

Weighing the benefits against the costs of a decision (A) Signup and view all the answers

What is the opportunity cost of attending a concert?

The value of the next best alternative you could have done with your time and money (D) Signup and view all the answers

Why are sunk costs irrelevant for decision making?

They represent past investments that cannot be recovered (B) Signup and view all the answers

What is the key question addressed by the marginal principle?

Should I do this more or less? (A) Signup and view all the answers

How does the interdependence principle apply to economic decision making?

It shows how individual choices can affect larger economic outcomes (C) Signup and view all the answers

Based on the text, what is an example of how decisions in one market impact other markets?

An increase in the minimum wage for factory workers leads to an increase in the price of goods (C) Signup and view all the answers

Why is it important to consider past and future choices when making economic decisions?

To understand how choices today can impact future opportunities (D) Signup and view all the answers

What is the central question addressed by the marginal principle?

Should I do this a little more or a little less? (D) Signup and view all the answers

A company is considering expanding its production facility. They've already spent $1 million on initial research and development. What advice would you give regarding this sunk cost?

Ignore the sunk cost and focus on future costs and benefits (B) Signup and view all the answers

Why can government interventions sometimes have negative consequences?

They lead to a decrease in the overall efficiency of the economy (A) Signup and view all the answers

How does the marginal principle relate to the concept of 'limited resources'?

It helps determine the most efficient use of limited resources (A) Signup and view all the answers

What does the term 'marginal benefit' represent in the context of individual demand?

The additional benefit gained from consuming one more unit of a good or service. (B) Signup and view all the answers

Which of the following is NOT a factor that can cause a shift in an individual's demand curve?

A change in the price of the product. (D) Signup and view all the answers

What is the primary reason why an individual demand curve slopes downward?

Each additional unit of a good or service provides a diminishing marginal benefit. (C) Signup and view all the answers

What is the significance of the cost-benefit principle in the context of economic decision-making?

It implies that decisions should only be made when benefits outweigh costs. (D) Signup and view all the answers

Which of the following is an example of the interdependence principle in economics?

A government imposing a tax on imported cars to protect domestic automakers. (B) Signup and view all the answers

How is market demand calculated?

By summing up the quantities demanded by all consumers at each price point. (D) Signup and view all the answers

The statement 'quantity demanded is higher when prices are lower' is known as the:

Law of Demand (D) Signup and view all the answers

What is the purpose of surveying customers to estimate market demand?

To gather data on the number of units consumers would purchase at different prices. (A) Signup and view all the answers

What does the term 'extensive margin' refer to in the context of market demand?

The decision of new consumers to enter the market and purchase a product. (B) Signup and view all the answers

Which of the following is NOT a core principle applied in the formation of individual demand?

The law of supply (D) Signup and view all the answers

What is the relationship between the individual demand curve and the market demand curve?

The market demand curve is a summation of all individual demand curves. (A) Signup and view all the answers

Study Notes

Income Distribution

39% of households earned less than $25,000 a year in 2014
Top 1% of earners in the US had an average household income of $2.7 million in 2014
Income distribution graphs show a large gap between the rich and poor.
The gap between the top 1% and the remaining 99% is substantial (millions of dollars).
Economic reports on income inequality show the top 1% of earners made 21.5% of the total US income in 2017.
Income tax laws and reporting requirements change over time.
Income is the flow of money earned per year, while wealth is the total assets accumulated over a lifetime.

Wealth Distribution

Top 10% of individuals control 70% of wealth in the US.
Wealth inequality is greater than income inequality.
The top 1% holds roughly 40% of all the wealth in the US.
Globally, income and wealth are highly concentrated in the top 10%.

Income Mobility

Income inequality can be measured by comparing a child's income rank to their parents' income rank.
Income mobility is the difference in a child's income rank compared to their parents'.

Poverty

Poverty rate is the fraction of people whose family income is below the poverty line, adjusted by family size.
Absolute poverty is the fraction of the population with disposable income below a fixed threshold (e.g., $1.90/day).
Relative poverty is when income is less than a certain percentage (e.g., 60%) of the median income.
Poverty rates in the US have not significantly decreased in the past 50 years.
Certain groups (children, single-parent households, racial/ethnic minorities, single mothers) have a higher likelihood of experiencing poverty.

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Description

Test your understanding of income and wealth distribution trends in the US. Explore statistics on household earnings, wealth inequality, and the implications of economic reports. Examine data related to income mobility and the concentration of wealth among the top earners.