Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 20, Problem 6PA
Subpart (a):
To determine
The different views for the redistribution of income.
Subpart (b):
To determine
The different views for the redistribution of income.
Subpart (c):
To determine
The different views for the redistribution of income.
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Suppose there are two possible income distributionsin a society of ten people. In the first distribution,nine people have incomes of $60,000 and one personhas an income of $20,000. In the second distribution,all ten people have incomes of $50,000.a. If the society had the first income distribution,what would be the utilitarian argument forredistributing income?b. Which income distribution would Rawls considermore equitable? Explain.c. Which income distribution would Nozick considermore equitable? Explain.
Consider a society consisting of two people. Edison earns an income of $85,000 per year and Hilary earns an income of $25,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Edison's income and give the revenue to Hilary.
Without any incentive distortion, Edison would retain $63,750 and Hilary would end up with $46,250. However, let us assume that since Edison will not receive all the income he earns, he decides to work less and earn an income of only $75,000, of which 25%×$75,000=$18,75025%×$75,000=$18,750 will be owed in taxes.
With the redistribution plan, Edison will take home an income of_________.
.
The $18,750 that Edison pays in taxes will be transferred by the government to Hilary. Let us assume that since Hilary now receives payment from the government, she will not work as many hours and will earn an income from work of only $24,000 instead of her initial $25,000.
With the redistribution plan, Hilary's total…
Consider a society consisting of two people. Jake earns an income of $100,000 per year and Latasha earns an income of $25,000 per year. The
government is considering a redistribution plan that would impose a 20% tax on Jake's income and give the revenue to Latasha.
Without any incentive distortion, Jake would retain $80,000 and Latasha would end up with $45,000. However, let us assume that since Jake will not
receive all the income he earns, he decides to work less and earn an income of only $85,000, of which 20 % x $85,000 $17,000 will be owed in
taxes.
With the redistribution plan, Jake will take home an income of
The $17,000 that Jake pays in taxes will be transferred by the government to Latasha. Let us assume that since Latasha now receives payment from
the government, she will not work as many hours and will earn an income from work of only $23,000 instead of her initial $25,000.
With the redistribution plan, Latasha's total income (including the government payment received) is…
Chapter 20 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- How do factor endowments affect personal income? Examine different provisions employed by the government in dealing with inequality in the distribution of income.arrow_forwardThe following questions list 10 cases of two distributions of income, in each of states "A" and "B." (You can think of A and B as with and without some policy change.) In each case there are three people only (in last three cases four people), and their incomes are the numbers given. So in the first question, the first person in state A has an income of $1 (think of this as $1 per hour, or day), while the second person has $2, and the third has $3. In state B the same three people have incomes of $2, $4 and $6 respectively. There are no other differences between states A and B, and no other differences between people besides their incomes as indicated. Your task is simple and it should not take more than a few minutes. Tell me which state (if either) in each question has higher "inequality." You should assume that everything else is identical between the two states; all that differs is the incomes of the people. This is entirely your judgment, given how you interpret the concept of…arrow_forwardConsider a society consisting of two people. Jacques earns an income of $100,000 per year and Kyoko earns an income of $30,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Jacques's income and give the revenue to Kyoko. Without any incentive distortion, Jacques would retain $75,000 and Kyoko would end up with $55,000. However, let us assume that since Jacques will not receive all the income he earns, he decides to work less and earn an income of only $90,000, of which 25%×$90,000=$22,50025%×$90,000=$22,500 will be owed in taxes. With the redistribution plan, Jacques will take home an income of . The $22,500 that Jacques pays in taxes will be transferred by the government to Kyoko. Let us assume that since Kyoko now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Kyoko's total income…arrow_forward
- Poverty is measured by the number of people who fall below a certain level of income—called the poverty line—that defines the income one needs for a basic standard of living. The official definition of the poverty line traces back to Group of answer choices A)The Great Depression B)Mollie Orshansky, whose idea was to define a poverty line based on the cost of a healthy diet. C)1953 and the ability to pay for housing and food. D)The 1965 cost of providing food, housing, and transportation.arrow_forwardTrue or false Recall we visited the Kabura family in Burundi by taking a stroll down Gapminder’s Dollar Street. The dollar values assigned to each household’s income by Gapminder’s Dollar Street account for the kids’ consumption in the household by using an adult equivalence scale. If we increase the incomes of everyone in an economy by an exact proportion, the Gini coefficient of inequality will increase by that same proportion.arrow_forwardThe Utilitarian specification of the social welfare function (SWF) generally leads to a higher level of redistribution than the Rawlsian specification of the SWF. True or false? Explain your answerarrow_forward
- In social welfare programs, there is no way to change either the benefit reduction rate or the benefit guarantee to simultaneously achieve all three goals of encouraging work, redistributing more income and lowering costs. What is this dilemma called?arrow_forwardThe following represents the income for the five citizens of Sodor: Thomas $14,000 James $20,000 Gordon $50,000 Percy $6,000 Clara $10,000 a) Make a table that shows the income, cumulative income, and cumulative income percentages for each of the quintiles. (Start with the lowest, meaning Percy) b) Draw a Lorenz curve and the line of absolute equality for the above situation. c) The tax rates for the island are as follows: no tax on the first $10,000, 10% tax rate on the next $10,000, and 50% tax rate on anything above $20,000. d) What is the total tax collected by the government? If each citizen receives 1/5 of the tax collected, how much would each receive? e) Make a table that shows the new income for the citizens, cumulative income, and the cumulative income percentage (income-tax payment + distribution payment) for each quintile. f) Add the new Lorenz curve to the graph in b). g) How have the Lorenz curve and Gini coefficient been affected by the tax? Explain.arrow_forwardSuppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15 utils. If our goal is to maximize the combined total utility of Victoria and Fredrick, we should: a. Redistribute income from Victoria to Fredrick. b. Redistribute income from Fredrick to Victoria. c. Not engage in any redistribution because the current situation already maximizes total utility. d. None of the above.arrow_forward
- https://data.oecd.org/inequality/income-inequality.htmarrow_forwardSadie T.M. Alexander (1898-1989) was the first black woman in the U.S. to receive a PhD in Economics (1921). Alexander wrote and spoke extensively on economic and racial justice. She emphasized that black Americans experienced disproportionate income losses during the Great Depression of the 1930s relative to white Americans and that income inequality may have contributed to the Depression: Our economy went into a downward spiral… because our distribution of income was such that the masses had no income to purchase goods and the investors refused to place their income and capital in industry because there was no one with money to buy the products. (Alexander 1945 as cited in Banks 2008). She also objected to high unemployment: She saw it as leading to heightened discrimination against black workers and argued in favor of “the right of all individuals to earn a decent living” (circa 1930s/40s as cited in Banks 2008). Is Alexander’s position on the ethics of labor market and income…arrow_forwardWhat is the main goal of redistribution policies in welfare economics? A. To increase government revenue B. To reduce income inequality C. To maximize consumer surplus D. To minimize deadweight lossarrow_forward
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