Econ1021 - Chapter 19 Test Bank - 2019 PDF

lOMoARcPSD|50581009 ECON1021 - Chapter 19 Test Bank - 2019 Principles of Microeconomics (The University of Western Ontario) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Ana M...

lOMoARcPSD|50581009 ECON1021 - Chapter 19 Test Bank - 2019 Principles of Microeconomics (The University of Western Ontario) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Economics: Canada in the Global Environment, 7e (Parkin) Chapter 19 Economic Inequality 19.1 Measuring Economic Inequality 1) Which of the following does Statistics Canada use to provide measures of economic inequality? A) market income only B) market income and after-tax income only C) after-tax income only D) total market and after-tax income only E) market income, total income, and after-tax income Answer: E Diff: 1 Topic: Measuring Economic Inequality 2) Market income equals A) the wages, interest, rent, and profit earned in factor markets after paying income taxes. B) the wages, interest, and profit earned in factor markets before paying income taxes. C) the wages, interest, and rent earned in factor markets before paying income taxes. D) the wages, interest, rent, and profit earned in factor markets before paying income taxes. E) the wages, rent, and profit earned in factor markets before paying income taxes. Answer: D Diff: 1 Topic: Measuring Economic Inequality 3) Total income equals A) market income minus payments to firms by governments. B) market income plus cash payments to households by governments. C) the wages, interest, rent, and profit earned in factor markets before paying income taxes. D) the wages, interest, rent, and profit earned in factor markets after paying income taxes. E) market income minus cash payments to households by governments. Answer: B Diff: 1 Topic: Measuring Economic Inequality 4) After-tax income equals A) total income minus tax payments by households to governments. B) total income minus tax payments by households to firms. C) total income plus tax payments by households to governments. D) market income plus cash payments to households by governments. E) market income minus tax payments by households to governments. Answer: A Diff: 1 Topic: Measuring Economic Inequality 1 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 5) In 2006, the poorest 20 percent of households received what percentage of the nation's after-tax income? A) 10.7 percent B) 4.8 percent C) 24.0 percent D) 16.4 percent E) 17.4 percent Answer: B Diff: 2 Topic: Measuring Economic Inequality 6) In 2006, the median household income in Canada was A) $5,000. B) $25,000. C) $44,000. D) $57,000. E) $65,000. Answer: C Diff: 2 Topic: Measuring Economic Inequality 7) In 2006, the mean household income in Canada was A) $54,300. B) $39,700. C) $25,000. D) $57,000. E) $65,000. Answer: A Diff: 2 Topic: Measuring Economic Inequality 8) In 2006, what percentage of households received the mode income in Canada? A) 5 percent B) 10 percent C) 7 percent D) 17.4 percent E) 20 percent Answer: C Diff: 2 Topic: Measuring Economic Inequality 2 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 9) In 2006, the mode income received by 7.0 percent of households in Canada was between A) $18,500 and $21,999. B) $15,000 and $19,999. C) $29,999 and $35,000. D) $16,000 and $22,500. E) $18,000 and $24,999. Answer: B Diff: 2 Topic: Measuring Economic Inequality 10) In 2006, the 20 percent of households with the highest incomes received what percentage of the total after-tax income? A) 14 percent B) 2 percent C) 71 percent D) 44 percent E) 55 percent Answer: D Diff: 2 Topic: Measuring Economic Inequality 11) An income Lorenz curve A) graphs the cumulative percentage of income against the cumulative percentage of households. B) measures the income among households ranked from the poorest to the richest. C) measures the income among households ranked from the richest to the poorest. D) measures the factor prices earned by the rich compared with the poor. E) is a downward-sloping curve. Answer: A Diff: 1 Topic: Measuring Economic Inequality 12) If each household made the same amount of income, then the Lorenz curve would be A) not defined, because it measures income inequality not income equality. B) the line of poverty. C) the line of equality. D) a right angle. E) horizontal. Answer: C Diff: 2 Topic: Measuring Economic Inequality 3 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 13) In 2006, the middle 20 percent of households received what percentage of total Canadian after-tax income? A) 10.7 percent B) 16.4 percent C) 25 percent D) 43 percent E) 52 percent Answer: B Diff: 2 Topic: Measuring Economic Inequality Use the figure below to answer the following questions. Figure 19.1.1 14) Refer to Figure 19.11. The poorest 20 percent of households receive what share of total income? A) 40 percent B) 60 percent C) 20 percent D) 5 percent E) 10 percent Answer: E Diff: 1 Topic: Measuring Economic Inequality 4 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 15) Refer to Figure 19.11. The richest 20 percent of households receive what share of total income? A) 10 percent B) 30 percent C) 40 percent D) 60 percent E) 100 percent Answer: C Diff: 2 Topic: Measuring Economic Inequality 16) Refer to Figure 19.11. The middle 20 percent of households receive what share of total income? A) 20 percent B) 25 percent C) 35 percent D) 15 percent E) 60 percent Answer: A Diff: 2 Topic: Measuring Economic Inequality 17) A Lorenz curve illustrates the distribution of income by graphing the A) cumulative percentage of income received and the cumulative percentage of households. B) chance of a family earning a specific income. C) wealth earned by a cumulative percentage of households. D) cumulative frequency of specific incomes. E) percentage change in income for a percentage change in population. Answer: A Diff: 1 Topic: Measuring Economic Inequality 18) The larger the gap between the Lorenz curve and the line of equality, A) the greater is the equality in the income distribution. B) the less is the inequality in the income distribution. C) the poorer are the top 50 percent of households. D) the richer are the lowest 50 percent of households. E) the greater is the inequality in the income distribution. Answer: E Diff: 2 Topic: Measuring Economic Inequality 5 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 19) The closer the Lorenz curve is to the line of equality, A) the more equal is the distribution. B) the less equal is the distribution. C) the more unfair is the income distribution. D) the richer are the highest 5 percent of households. E) the poorer are the highest 5 percent of households. Answer: A Diff: 2 Topic: Measuring Economic Inequality 20) Choose the correct statement. A) 50 percent of households with two parents present are likely to be poor. B) Households with two parents present on average earn 50 percent more than households with a single parent. C) Households with two parents present on average are less likely to be poor than households with a single female parent. D) Employers generally discriminate against single females in the workplace. E) Households with two parents present are twice as likely as a household with a single male parent to be poor. Answer: C Diff: 2 Topic: Measuring Economic Inequality 21) Household characteristics that stand out when determining the incidence of poverty include all of the following except A) household type. B) education. C) age of householder. D) ethnic background. E) number of children. Answer: D Diff: 1 Topic: Measuring Economic Inequality 22) Poverty is A) an income below the national average income level. B) an income below the national median income level. C) a state in which a family's income is too low to be able to buy the quantities of food, shelter, and clothing that are deemed necessary. D) the income earned by the poorest 20 percent of households. E) a state in which a family spends more than 50 percent of its income on food, shelter, and clothing. Answer: C Diff: 1 Topic: Measuring Economic Inequality 6 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 23) The low-income cutoff level is A) a level of housing and food provided by the government. B) a fixed real income used to determine whether or not a household may qualify for welfare. C) the income level below which a family normally spends 73.6 percent or more of its income on food, shelter, and clothing. D) the income level below which a family normally spends 63.6 percent or more of its income on food, shelter, and clothing. E) a level of income below which starvation occurs. Answer: D Diff: 2 Topic: Measuring Economic Inequality 24) From an examination of data on income and wealth, it can be concluded that A) wealth distribution is more equal than income distribution. B) income distribution is more equal than wealth distribution. C) wealth distribution is equal to income distribution. D) income and wealth are the same. E) income and wealth are unrelated. Answer: B Diff: 2 Topic: Measuring Economic Inequality 25) The poorest people are likely A) living in a household with two parents present. B) earning almost all of their income from investments. C) university graduates. D) in the labour force. E) seasonal workers on farms. Answer: E Diff: 2 Topic: Measuring Economic Inequality 26) The inequality in the distribution of wealth is A) less than the inequality in the distribution of income. B) decreased by the existence of assortative mating. C) a better measure of the inequality in the distribution of economic resources than is the inequality in the distribution of income. D) shown by a Lorenz curve that is farther away from the line of equality than the Lorenz curve for income. E) all of the above. Answer: D Diff: 2 Topic: Measuring Economic Inequality 7 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 27) The wealthiest 10 percent of Canadian families own approximately A) 10 percent of the wealth. B) 17 percent of the wealth. C) 55 percent of the wealth. D) 67 percent of the wealth. E) 80 percent of the wealth. Answer: C Diff: 2 Topic: Measuring Economic Inequality 28) Which diagram is used by economists to illustrate the distribution of income or wealth? A) Lorenz curve B) normal bell-shaped distribution C) wage differential curve D) low-income cut-off curve E) marginal revenue product diagram Answer: A Diff: 1 Topic: Measuring Economic Inequality Source: Study Guide 8 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following questions. Figure 19.1.2 29) Consider the Lorenz curves in Figure 19.1.2. Which Lorenz curve corresponds to the greatest income inequality? A) A B) B C) C D) D E) impossible to tell without additional information Answer: D Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 30) Refer to Figure 19.1.2. What is curve A called? A) market distribution line B) line of equality C) fairness line D) low-income cut-off line E) none of the above Answer: B Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 9 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 31) Consider the Lorenz curves in Figure 19.1.2. Which point indicates that the richest 20 percent of families earn 60 percent of the income? A) a B) b C) c D) d E) none of the above Answer: D Diff: 2 Topic: Measuring Economic Inequality 32) Consider the Lorenz curves in Figure 19.1.2. Which point indicates that the richest 20 percent of families earn 80 percent of the income? A) a B) b C) c D) d E) none of the above Answer: E Diff: 2 Topic: Measuring Economic Inequality 33) Consider the Lorenz curves in Figure 19.1.2. Which point indicates that the poorest 20 percent of families earn 9 percent of the income? A) a B) b C) c D) d E) none of the above Answer: A Diff: 2 Topic: Measuring Economic Inequality 34) Which point in Figure 19.1.2 indicates that the richest 20 percent of families earn 40 percent of the income? A) a B) b C) c D) d E) none of the above Answer: C Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 10 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following questions. Figure 19.1.3 35) In Figure 19.1.3, the richest 20 percent of all families receive what share of all income? A) 10 percent B) 20 percent C) 30 percent D) 40 percent E) none of the above Answer: D Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 36) In Figure 19.1.3, the poorest 20 percent of all families receive what share of income? A) 10 percent B) 20 percent C) 30 percent D) 40 percent E) none of the above Answer: A Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 11 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 37) In Figure 19.1.3, the middle 20 percent of all families receive what share of income? A) 10 percent B) 20 percent C) 30 percent D) 40 percent E) none of the above Answer: B Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 38) The curve in Figure 19.1.3 is the A) line of fairness. B) line of equality. C) learning curve. D) wage differential curve. E) Lorenz curve. Answer: E Diff: 1 Topic: Measuring Economic Inequality Source: Study Guide 39) In Figure 19.1.3, the second poorest 20 percent of all families receive what share of income? A) 10 percent B) 20 percent C) 30 percent D) 40 percent E) none of the above Answer: A Diff: 2 Topic: Measuring Economic Inequality 40) In Figure 19.1.3, the second richest 20 percent of all families receive what share of income? A) 10 percent B) 20 percent C) 30 percent D) 40 percent E) none of the above Answer: B Diff: 2 Topic: Measuring Economic Inequality 12 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 41) In Canada, the low-income cut-off level for a family is when ________ or more of income is spent on food, shelter, and clothing. A) 33.6 percent B) 43.6 percent C) 53.6 percent D) 63.6 percent E) 73.6 percent Answer: D Diff: 2 Topic: Measuring Economic Inequality 42) The Gini coefficient for a perfectly equal distribution of income is A) equal to zero. B) equal to 1. C) equal to 100. D) equal to infinity. E) named after Gini Lollobrigida. Answer: A Diff: 1 Topic: Measuring Economic Inequality Source: Study Guide 43) The distribution of annual income A) understates the degree of inequality because it does not take into account the family's stage in its life cycle. B) understates the degree of inequality because it does not take into account the distribution of human capital. C) overstates the degree of inequality because it does not take into account the family's stage in its life cycle. D) overstates the degree of inequality because it does not take into account the distribution of human capital. E) is an accurate measure of the degree of inequality. Answer: C Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 44) Wealth differs from income because A) income is a stock and wealth is a flow. B) wealth is derived from income. C) income is what you earn and wealth is what you own. D) income is what you own and wealth is what you earn. E) wealth is preferable to income. Answer: C Diff: 1 Topic: Measuring Economic Inequality Source: Study Guide 13 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 45) The distribution of wealth A) understates the degree of inequality because it does not take into account the family's stage in its life cycle. B) understates the degree of inequality because it does not take into account the distribution of human capital. C) overstates the degree of inequality because it does not take into account the family's stage in its life cycle. D) overstates the degree of inequality because it does not take into account the distribution of human capital. E) is an accurate measure of the degree of inequality. Answer: D Diff: 2 Topic: Measuring Economic Inequality Source: Study Guide 46) Measured wealth distributions that do not consider the distribution of human capital A) overstate the equality of the income distribution. B) understate the inequality of the income distribution. C) are correct since human capital is difficult to accurately measure. D) overstate the inequality of the wealth distribution. E) are correct because the distribution of human capital is about the same as the distribution of non-human wealth. Answer: D Diff: 2 Topic: Measuring Economic Inequality 47) Incomes in China and India are a small fraction of incomes in Canada. But incomes in China and India are growing at more than twice the rate of those in Canada. As a result, the inequality in income between the people in China and India and people in Canada is ________ and the world Gini ratio is ________. A) staying relatively constant; remaining constant B) increasing in some years and decreasing in other years; remaining constant C) decreasing; decreasing D) increasing; increasing E) decreasing; increasing Answer: C Diff: 2 Topic: Measuring Economic Inequality Source: MyEconLab 14 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 19.2 The Sources of Economic Inequality 1) The demand for high-skilled labour is derived from the A) exploitation of the low-skilled workers. B) marginal cost of production. C) lower wage of the labour. D) supply of the high-skilled labourers. E) value of marginal product of high-skilled labour. Answer: E Diff: 2 Topic: The Sources of Economic Inequality 2) The demand for low-skilled labour is derived from the A) work left undone by the high-skilled workers. B) marginal cost of production. C) lower wage rate of the labour. D) supply of the high-skilled labourers. E) value of marginal product of low-skilled labour. Answer: E Diff: 2 Topic: The Sources of Economic Inequality 3) The greater the value of marginal product of labour, A) the greater is the supply of labour. B) the greater is the demand for labour. C) the greater is the marginal cost of production. D) the greater is unemployment. E) the lower is the wage rate. Answer: B Diff: 2 Topic: The Sources of Economic Inequality 4) If the supply of labour curve is upward sloping but not vertical, and if the value of marginal product of labour increases, A) the supply of labour increases. B) the wage rate rises. C) the marginal cost of production increases. D) the exploitation of workers decreases. E) employment is unchanged. Answer: B Diff: 2 Topic: The Sources of Economic Inequality 15 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following questions. Figure 19.2.1 5) Refer to Figure 19.2.1. For any given quantity of labour employed, A) the elasticity of demand for high-skilled labourers is less than the elasticity of demand for low-skilled labourers. B) high-skilled labourers will receive a lower wage than low-skilled labourers. C) high-skilled labourers will receive a greater wage than low-skilled labourers. D) the vertical distance between the two demand curves is the compensation for the cost of acquiring the skill. E) the vertical distance between the two curves is the present value of human capital. Answer: C Diff: 1 Topic: The Sources of Economic Inequality Source: Study Guide 6) Refer to Figure 19.2.1. At any given employment level, the vertical distance between the demand curves of the high-skilled and low-skilled workers A) is equal to the difference in the value of marginal product of the workers. B) is equal to the difference in the work ethic of the workers. C) is caused by discrimination against minorities. D) is caused by discrimination against women. E) equals the cost of acquiring the skills. Answer: A Diff: 2 Topic: The Sources of Economic Inequality 16 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 7) The vertical distance between the two supply curves in Figure 19.2.1 A) is the compensation for the cost of acquiring skill. B) is the VMP of skill. C) is the result of discrimination against low-skilled workers. D) is the result of subsidies for high-skilled workers. E) will disappear if there is free entry in the high-skilled market. Answer: A Diff: 2 Topic: The Sources of Economic Inequality Source: Study Guide 8) Refer to Figure 19.2.1. At the equilibrium wage rates, A) more high-skilled workers will be hired than low-skilled workers. B) more low-skilled workers will be hired than high-skilled workers. C) the horizontal distance between the two demand curves is the compensation for the cost of acquiring the skill. D) the horizontal distance between the two supply curves is the value of marginal product of skill. E) none of the above. Answer: A Diff: 2 Topic: The Sources of Economic Inequality 9) Refer only to the information in Figure 19.2.1. At any given wage rate, A) more hours of low-skilled labour will be demanded than high-skilled labour. B) more hours of high-skilled labour will be demanded than low-skilled labour. C) more hours of low-skilled labour will be supplied than high-skilled labour. D) more hours of high-skilled labour will be supplied than low-skilled labour. E) both B and C are correct. Answer: E Diff: 2 Topic: The Sources of Economic Inequality 17 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following questions. Figure 19.2.2 10) Refer to Figure 19.2.2. At an employment level of 40 hours per week, the difference in the value of marginal product of high-skilled workers and low-skilled workers is A) $0. B) $2 an hour. C) $6 an hour. D) $4 an hour. E) $3 an hour. Answer: B Diff: 1 Topic: The Sources of Economic Inequality 11) Refer to Figure 19.2.2. At an employment level of 20 hours per week, firms are willing to pay A) a wage rate of $7 an hour to low-skilled workers. B) a maximum of $5 an hour to high-skilled workers. C) up to $7 an hour for high-skilled workers. D) the same for high-skilled workers as for low-skilled workers. E) $3 an hour more for high-skilled workers. Answer: C Diff: 1 Topic: The Sources of Economic Inequality 18 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 12) Refer to Figure 19.2.2. At a wage rate of $5, an employer would hire A) the same amount of high-skilled workers and low-skilled workers. B) 20 hours of low-skilled labour and 40 hours of high-skilled labour. C) 60 hours of low-skilled labour and 20 hours of high-skilled labour. D) 20 hours of low-skilled labour and 60 hours of high-skilled labour. E) 40 hours of low-skilled labour and 60 hours of high-skilled labour. Answer: D Diff: 1 Topic: The Sources of Economic Inequality 13) Refer to Figure 19.2.2. For the employer to hire 40 hours per week of both high-skilled and low-skilled labour, A) high-skilled workers would have to earn a wage rate that is twice that of the low-skilled workers. B) high-skilled workers would have to earn a wage rate that is less than that of the low-skilled workers. C) high-skilled workers would have to earn a wage that is $2 more than the wage paid to low-skilled workers. D) low-skilled workers would have to earn a wage that is $2 more than the wage paid to high-skilled workers. E) high-skilled workers need to earn a wage that is between zero and $2 more than low-skilled workers. Answer: C Diff: 2 Topic: The Sources of Economic Inequality 19 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following question. Figure 19.2.3 14) Refer to Figure 19.2.3. At any given level of employment for high-skilled and low-skilled workers, the vertical distance between the two supply curves A) disappears if there is free entry into the skill market. B) disappears if there is equal pay for work of equal value. C) is created by discrimination against low-skilled workers. D) is the compensation required for the cost of acquiring the skills. E) equals the value of marginal product of skill. Answer: D Diff: 2 Topic: The Sources of Economic Inequality 20 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following question. Figure 19.2.4 15) Refer to Figure 19.2.4. At an employment level of 30 hours per week, the compensation required for the cost of acquiring skill is A) $0. B) $2 an hour. C) $4 an hour. D) $6 an hour. E) cannot be determined without knowing the demand for labour. Answer: B Diff: 2 Topic: The Sources of Economic Inequality 21 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following questions. Figure 19.2.5 16) Refer to Figure 19.2.5. This figure shows the labour supply curves and the value of marginal product curves for high-skilled and low-skilled workers. The equilibrium wage rate for low-skilled workers is A) $3 an hour. B) $7 an hour. C) $6 an hour. D) $5 an hour. E) $4 an hour. Answer: E Diff: 2 Topic: The Sources of Economic Inequality 17) Refer to Figure 19.2.5. This figure shows the labour supply curves and the value of marginal product curves for high-skilled and low-skilled workers. The equilibrium wage rate for high-skilled workers is A) $5 an hour. B) $4 an hour. C) $6 an hour. D) $8 an hour. E) $7 an hour. Answer: E Diff: 2 Topic: The Sources of Economic Inequality 22 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 18) Refer to Figure 19.2.5. This figure shows the labour supply curves and the value of marginal product curves for high-skilled and low-skilled workers. If the labour markets are competitive, then for a 40-hour work week, high-skilled workers must be paid A) an extra $3 to compensate for the cost of acquiring their human capital and for their increased productivity. B) an extra $20 to compensate for the cost of acquiring their human capital and for their increased productivity. C) an extra $120 to compensate for the cost of acquiring their human capital and for their increased productivity. D) an extra $300 to compensate for the cost of acquiring their human capital and for their enhanced productivity. E) an extra $180 to compensate for the cost of acquiring their human capital and for their increased productivity. Answer: C Diff: 2 Topic: The Sources of Economic Inequality 19) Refer to Figure 19.2.5. This figure shows the labour supply curves and the value of marginal product curves for high-skilled and low-skilled workers. If there is an increase in the supply of high-skilled workers and the supply of high-skilled workers is now equal to the supply of low-skilled workers, then A) wages paid to high-skilled workers would fall to $4 an hour. B) wages paid to high-skilled workers would fall to $5 an hour. C) wages paid to high-skilled workers would fall to $6 an hour. D) there would be no change in the wages of high-skilled workers, because high-skilled workers always earn more than low-skilled workers. E) there would be no change in the wages of high-skilled workers, because their value of marginal product is unchanged. Answer: B Diff: 2 Topic: The Sources of Economic Inequality 20) Refer to Figure 19.2.5. This figure shows the labour supply curves and the value of marginal product curves for high-skilled and low-skilled workers. If there is an increase in the supply of high-skilled workers and the supply of high-skilled workers is now equal to the supply of low-skilled workers, then employment of high-skilled labour would A) remain the same. B) decrease. C) increase to 40 hours per week. D) increase to 50 hours per week. E) none of the above. Answer: D Diff: 2 Topic: The Sources of Economic Inequality 23 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 21) One important source of earnings differentials is the A) style of dress of the employee. B) hair colour of the employee. C) type of car driven by the employee. D) number of years it takes the employee to graduate from college. E) education level of the employee. Answer: E Diff: 1 Topic: The Sources of Economic Inequality 22) Which one of the following is not a reason why the wages of high-skilled workers exceed the wages of low-skilled workers? A) The market for high-skilled workers is more competitive than the market for low-skilled labour. B) The value of marginal product of high-skilled workers is greater than that of low-skilled workers. C) The cost of obtaining the human capital required for high-skilled workers is greater than the cost of obtaining the human capital required for low-skilled workers. D) High-skilled workers have acquired more human capital than low-skilled workers. E) The demand curve for high-skilled workers lies to the right of the demand curve for low-skilled workers. Answer: A Diff: 2 Topic: The Sources of Economic Inequality Source: Study Guide 23) Other things remaining the same, if education costs rise substantially, we would expect to see A) a decrease in the value of marginal product of high-skilled workers. B) a decrease in the demand for high-skilled workers. C) an increase in the supply of high-skilled workers. D) an increase in the number of high-skilled workers employed. E) an increase in the wages received by high-skilled workers. Answer: E Diff: 2 Topic: The Sources of Economic Inequality 24) Which of the following statements is false? Human capital A) is the accumulated skill and knowledge of human beings. B) is costly to acquire. C) increases from on-the-job training. D) increases from higher wages. E) increases from education. Answer: D Diff: 2 Topic: The Sources of Economic Inequality 24 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 25) Which of the following three statements is true? Human capital A) decreases your value of marginal product. B) lowers your wages. C) may reduce your income while you are accumulating it. D) All of the above statements are true. E) None of the above three statements are true. Answer: C Diff: 1 Topic: The Sources of Economic Inequality 26) Savings do not have to represent an inequality in the distribution of income because A) wealth is increased when saving increases. B) savings may redistribute uneven income over the life cycle. C) they can be left to future generations. D) the interest payments on savings plans are too small. E) debts cannot be bequeathed. Answer: B Diff: 3 Topic: The Sources of Economic Inequality 27) A generation that is wealthy and leaves assets to another generation that is not wealthy A) increases the inequality of the income distribution. B) decreases the inequality of the income distribution. C) does not change the distribution of income. D) proves that inheritance taxes are needed. E) is improving efficiency. Answer: B Diff: 2 Topic: The Sources of Economic Inequality 28) Complete the following sentence. Passing on wealth from one generation to another A) can decrease the inequality of wealth. B) will decrease the inequality of income. C) is limited since the government taxes this at a very high marginal tax rate. D) is one of the main causes of social unrest. E) will make the distribution of wealth more closely match the distribution of human capital. Answer: A Diff: 2 Topic: The Sources of Economic Inequality 25 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 29) Complete the following sentence. Assortative mating A) tends to breakdown barriers between the social classes. B) tends to increase the equality of the income distribution. C) tends to increase the equality of the distribution of wealth. D) tends to keep the income and wealth distributions from becoming more equal. E) occurs rarely these days due to changes in social values. Answer: D Diff: 2 Topic: The Sources of Economic Inequality 30) Assortative mating means that A) poor men tend to marry rich women. B) people tend to marry within their own socioeconomic class. C) people tend to marry above their own socioeconomic class. D) same sex marriages occur because "like attracts like." E) people with different values will marry. Answer: B Diff: 1 Topic: The Sources of Economic Inequality Source: Study Guide 31) Wage differentials between males and females can be explained to some extent by A) educational differences. B) human capital differences. C) degree of specialization differences. D) discrimination. E) all of the above. Answer: E Diff: 2 Topic: The Sources of Economic Inequality Source: Study Guide 32) If discrimination takes the form of consumers discriminating against a group of workers, the effect on this group of workers will be to shift their A) value of marginal product curve rightward and increase their wage rate. B) value of marginal product curve leftward and decrease their wage rate. C) value of marginal product curve rightward and decrease their wage rate. D) supply of labour curve leftward and increase their wage rate. E) supply of labour curve rightward and decrease their wage rate. Answer: B Diff: 2 Topic: The Sources of Economic Inequality 26 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Use the figure below to answer the following questions. Figure 19.2.6 33) Refer to Figure 19.2.6. If this is the market for a group of workers who are discriminated against by customers and point A represents the equilibrium without discrimination, which point represents the equilibrium for the workers who are discriminated against? A) D B) B C) I D) C E) H Answer: E Diff: 2 Topic: The Sources of Economic Inequality 34) Refer to Figure 19.2.6. If this is the market for a group of workers who are discriminated in favour of by consumers and point A represents the equilibrium without discrimination, which point represents the equilibrium for the workers who receive favourable discrimination? A) D B) B C) I D) C E) H Answer: D Diff: 2 Topic: The Sources of Economic Inequality 27 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 35) Refer to Figure 19.2.6. This is the market for a group of workers. If point A represents the equilibrium for workers with higher human capital, which point represents the equilibrium for the workers with less human capital? A) D B) B C) I D) C E) H Answer: C Diff: 3 Topic: The Sources of Economic Inequality 36) In an economy in 2000, 3 million people had full-time managerial and professional jobs that paid an average of $800 a week. At the same time, 1 million people had full-time sales positions that paid an average of $530 a week. Managers and professionals are paid more than salespeople because ________. A) the supply curve of managers and professionals lies above that of salespeople B) the demand curve for managers and professionals lies above that of salespeople C) managers and professionals have a a higher value of marginal product D) the typical manager or professional has incurred a higher cost of education E) all of the above Answer: E Diff: 2 Topic: The Sources of Economic Inequality Source: MyEconLab 37) The main reason that wealth inequality persists across generations is that ________. A) people tend to marry within their own socioeconomic class B) intergenerational transfers can only increase wealth inequality C) there are differences between households in their degree of specialization D) rich families have equal wealth over the life cycle E) all of the above Answer: A Diff: 2 Topic: The Sources of Economic Inequality Source: MyEconLab 28 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 38) Choose the correct sentence. A) Inherited wealth does not change income inequality because debts can't be forced onto the next generation. B) Inherited wealth can increase income inequality because debts can't be forced onto the next generation, but it can also decrease income inequality. C) Inherited wealth decreases income inequality because debts are forced onto the next generation. D) Inherited wealth decreases income inequality because on average most people inherit the same amount of money. E) Inherited wealth always increases income inequality because of assortative mating. Answer: B Diff: 2 Topic: The Sources of Economic Inequality Source: MyEconLab 39) Technological change ________ the demand for high-skilled workers and ________ the demand for low-skilled workers. As a result, income inequality ________. A) increases; decreases; decreases B) increases; decreases; increases C) increases; increases; decreases D) decreases; decreases; increases E) increases; does not change; increases Answer: B Diff: 2 Topic: The Sources of Economic Inequality Source: MyEconLab 40) Globalization ________ the demand for high-skilled workers and ________ the demand for low-skilled workers in Canada. As a result, income inequality in Canada ________. A) decreases; increases; decreases B) increases; decreases; increases C) decreases; decreases; decreases D) increases; increases; decreases E) increases; does not change; increases Answer: B Diff: 2 Topic: The Sources of Economic Inequality Source: MyEconLab 29 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 41) Two possible explanations for income inequality by sex are differences in ________ and differences in ________. A) age; human capital B) location; education level C) degree of specialization; human capital D) degree of specialization; size of family E) preferences; education level Answer: C Diff: 2 Topic: The Sources of Economic Inequality Source: MyEconLab 19.3 Income Redistribution 1) Government transfer payments, such as welfare payments, redistribute income and A) increase the incentive to work. B) improve economic efficiency. C) increase tax receipts. D) decrease the incentive to work. E) push the Lorenz curve further away from the line of equality. Answer: D Diff: 1 Topic: Income Redistribution 2) The three main avenues through which the government redistributes income are A) subsidized services, sales taxes, and user fees. B) sales taxes, income maintenance programs, and income taxes. C) income maintenance programs, user fees, and welfare programs. D) subsidized services, income taxes, and income maintenance programs. E) welfare programs, income taxes, and income maintenance programs. Answer: D Diff: 2 Topic: Income Redistribution 3) A progressive income tax A) taxes lower income people a larger percentage than higher income people. B) taxes income at an average rate that increases with income. C) receives more tax from rich people, but taxes them at the same rate as poor people. D) taxes everyone at the same rate. E) is rarely used in advanced economies. Answer: B Diff: 1 Topic: Income Redistribution 30 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 4) A proportional income tax A) taxes lower income people a larger percentage than higher income people. B) taxes lower income people a smaller percentage than higher income people. C) receives less tax from higher income people, but taxes them at the same rate as lower income people. D) taxes everyone at the same rate. E) taxes everyone the same amount. Answer: D Diff: 1 Topic: Income Redistribution 5) A regressive income tax A) taxes income at an average rate that decreases with income. B) taxes lower income people a smaller percentage than higher income people. C) receives more from rich people, but taxes them at the same rate as poor people. D) taxes everyone at the same rate. E) taxes income at a marginal rate that increases with rises in income. Answer: A Diff: 1 Topic: Income Redistribution 6) The most heavily taxed Canadians live in A) Quebec. B) Manitoba. C) Alberta. D) Ontario. E) British Columbia. Answer: A Diff: 2 Topic: Income Redistribution 7) The least heavily taxed Canadians live in A) British Columbia. B) Quebec. C) Manitoba. D) Alberta. E) Ontario. Answer: D Diff: 2 Topic: Income Redistribution 31 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 8) The tax system at both the federal and provincial levels is A) progressive. B) regressive. C) proportional. D) a combination of proportional and regressive. E) a combination of progressive and regressive. Answer: A Diff: 2 Topic: Income Redistribution 9) Comparing the distribution of income after taxes and benefits to the distribution of market income, it is true that the distribution of income after taxes and benefits is ________ the distribution of market income. A) more equally distributed than B) less equally distributed than C) more equally distributed only for the middle quintile than D) as equally distributed as the E) more equally distributed for the bottom two quintiles and less equally distributed for the top three quintiles than Answer: A Diff: 2 Topic: Income Redistribution 10) Income maintenance programs include all of the following programs except A) social security programs. B) workers' compensation. C) Canada Pension Plan. D) employment insurance. E) the minimum wage. Answer: E Diff: 1 Topic: Income Redistribution 11) One criticism of social security programs such as the Guaranteed Income Supplement is that A) it promotes efficiency rather than equity. B) it helps equity but hurts efficiency. C) it gives too much money to the elderly. D) it gives too much money to the poor. E) it gives too much money to the rich. Answer: B Diff: 2 Topic: Income Redistribution 32 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 12) Policies that result in a redistribution of income toward the poor include all of the following except A) public provision of elementary education. B) public provision of high school education. C) public provision of health-care services. D) public excise taxes. E) public provision of subsidized university education. Answer: D Diff: 1 Topic: Income Redistribution 13) In the absence of government policies to redistribute income, the income distribution will be the A) market distribution. B) unfair distribution. C) capitalist distribution. D) efficient distribution. E) line of equality. Answer: A Diff: 1 Topic: Income Redistribution 14) If the average tax rate increases as income increases, the income tax is A) progressive. B) proportional. C) negative. D) regressive. E) excessive. Answer: A Diff: 2 Topic: Income Redistribution Source: Study Guide 15) Which one of the following reduces the inequality of income or wealth relative to the market distribution? A) government payments to the poor B) a regressive income tax C) large inheritances D) assortative mating E) all of the above Answer: A Diff: 2 Topic: Income Redistribution Source: Study Guide 33 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 16) If the average tax rate decreases as income increases, the income tax is A) progressive. B) proportional. C) negative. D) regressive. E) redistributive. Answer: D Diff: 2 Topic: Income Redistribution Use the table below to answer the following questions. Table 19.3.1 17) In Table 19.3.1, which tax plan is proportional? A) Plan A B) Plan B C) Plan C D) Plan D E) impossible to calculate without additional information Answer: A Diff: 2 Topic: Income Redistribution Source: Study Guide 18) In Table 19.3.1, which tax plan is progressive? A) Plan A B) Plan B C) Plan C D) Plan D E) impossible to calculate without additional information Answer: B Diff: 2 Topic: Income Redistribution Source: Study Guide 34 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 19) A welfare trap occurs when the marginal tax rate is A) negative. B) zero. C) 100% or more. D) positive. E) less than the average tax rate. Answer: C Diff: 2 Topic: Income Redistribution 20) Economic efficiency and economic equity have what relation? A) Redistribution of income reduces economic equality while it increases economic efficiency. B) Income is equitably distributed in free market systems without intervention by government. C) There is a no tradeoff between the two. D) There is a tradeoff between equality and efficiency. E) More equality is generally more efficient. Answer: D Diff: 1 Topic: Income Redistribution 21) Redistribution of income from the rich to the poor will lead to a reduction in total output. This is known as the A) market distribution. B) Robin Hood principle. C) inheritance principle. D) big tradeoff. E) capitalist dilemma. Answer: D Diff: 1 Topic: Income Redistribution Source: Study Guide 22) The group that faces the weakest incentive to work are A) those who pay the highest income tax rate B) those who pay the lowest income tax rate. C) the middle class. D) households that benefit from welfare. E) all of the above. Answer: D Diff: 1 Topic: Income Redistribution 35 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])  lOMoARcPSD|50581009 Refer to the table below to answer the following questions. Table 19.3.2 Before -tax Plan A tax Plan B tax Plan C tax income (dollars) (dollars) (dollars) (dollars) 10,000 1,000 1,000 2,000 20,000 2,000 4,000 2,000 30,000 3,000 9,000 2,000 23) Refer to Table 19.3.2. The table shows three tax payment schemes. Which tax payment plan reduces inequality? A) Plan A B) Plan A and Plan C C) Plan C D) Plan B E) Plan A, Plan B, and Plan C Answer: D Diff: 1 Topic: Income Redistribution Source: MyEconLab 24) Refer to Table 19.3.2. The table shows three tax payment schemes. Which tax payment plan has no effect on inequality? A) Plan B B) Plan C C) Plan A D) Plan A and Plan C E) Plan B and Plan C Answer: C Diff: 1 Topic: Income Redistribution Source: MyEconLab 25) The redistribution of income creates the big tradeoff between ________. A) receiving workers' compensation and not receiving workers' compensation B) equity and efficiency C) qualifying to receive employment insurance and not qualifying to receive employment insurance D) earning an income and losing welfare benefits E) being rich and being poor Answer: B Diff: 1 Topic: Income Redistribution Source: MyEconLab 36 © 2010 Pearson Education Canada Downloaded by Ana Markoska ([email protected])