1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil.

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1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil

2 Chapter 18 Income Distribution & Poverty 2/22/2016 © ©1999 South-Western College Publishing

3 This chapter discusses principles associated with The Case for Income InequalityThe Case for Income Equality © ©1999 South-Western College Publishing Life Cycle of WealthRawls’s Theory of Justice The Gini Coefficient The Lorenze CurvePoverty ThresholdsNegative Income Tax

4 What are the different ways of making income? Wages Interest Rent Profit © ©1999 South-Western College Publishing

5 What makes rich people rich? Interest, rent, and profit © ©1999 South-Western College Publishing

6 What are some techniques used to measure income distribution? The Lorenze Curve Gini Coefficient © ©1999 South-Western College Publishing

7 What is the Lorenze Curve? Shows the percentage of total income received by a given percentage of recipients whose incomes are arranged from smallest to largest © ©1999 South-Western College Publishing

8 Lorenz Curve Cumulative % of families Perfect Income Equality Cumulative Percent of Income © ©1999 South-Western College Publishing

9 What is the Gini Coefficient? A numerical measure of the degree on income inequality in an economy © ©1999 South-Western College Publishing

10 What does the Gini Coefficient have to do with the Lorenze Curve? The coefficient transforms the Lorenze Curve into a numerical value © ©1999 South-Western College Publishing

11 Cumulative % of families Cumulative Percent of Income A B Areas produced by the Lorenze Curve G = A/(A+ B) © ©1999 South-Western College Publishing

12 With the Gini Coefficient, what do the #’s mean? A number of 0 is perfect income equality A number of 1 is perfect income inequality © ©1999 South-Western College Publishing

13 The Bureau of the Census provides income & poverty information © ©1999 South-Western College Publishing

14 How unequal is the income distribution in the U.S.? It is more uneven than in some countries and less uneven than others © ©1999 South-Western College Publishing

15 What is Wealth? The accumulated assets owned by individuals © ©1999 South-Western College Publishing

16 What is Life Cycle Wealth? Wealth in the form of nonmonetary assets, such as a house, automobiles, and clothing © ©1999 South-Western College Publishing

17 What are some reasons to justify Income Equality? The randomness of personal misfortune is a misfortune Rawls’s Theory of Justice There’s nothing random about inequality Equality and maximum utility © ©1999 South-Western College Publishing

18 What does the “Randomness Theory” have to say about Income Inequality? Good fortune is distributed randomly so income inequality has no justification © ©1999 South-Western College Publishing

19 What is “Rawl’s Theory of Justice” argument? Because income is meted out randomly, income equality is justified © ©1999 South-Western College Publishing

20 What is the “There’s nothing Random about Inequality” argument? Because people own property from theft, and property determines income, incomes should be equal © ©1999 South-Western College Publishing

21 What is the “Equality and Maximum Utility” argument? Because equality produces the greatest welfare for the greatest number of people, it should be equalized © ©1999 South-Western College Publishing

22 For more information about income equality: © ©1999 South-Western College Publishing docs/erp/ /rawls.html on_debate.html

23 What are the cases for Income Inequality? Efficiency Economic Growth © ©1999 South-Western College Publishing

24 What is the “Efficiency” argument? There has to be inequality so that people will have an incentive to be productive © ©1999 South-Western College Publishing

25 What is the “Economic Growth” argument? Because the wealthy can afford to save, a high savings rate makes possible money for investments © ©1999 South-Western College Publishing

26 What is Median Income? The midpoint of a society’s income distribution © ©1999 South-Western College Publishing

27 What is the Poverty threshold? The level of income below which families are considered to be poor © ©1999 South-Western College Publishing

28 How do we define Poverty? As a % of median income Meeting basic needs standard © ©1999 South-Western College Publishing

29 How many people in the U.S. live in poverty? Poor families make up a little more than 10% of the population © ©1999 South-Western College Publishing

30 How does the Government help the Poor? Cash assistance In-kind assistance © ©1999 South-Western College Publishing

31 What is the Negative Income Tax? Based on a sliding scale, below a certain income level the government pays money to people © ©1999 South-Western College Publishing

32 What is the Lorenze Curve? What is the Gini Coefficient? What are some reasons to justify Income Equality?What are some reasons to justify Income Equality? What are the cases for Income Inequality?What are the cases for Income Inequality? What is Median Income? How do we define Poverty? What is a Negative Income Tax?

33 ENDEND © ©1999 South-Western College Publishing