Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 19 Inequality and Poverty
19.1 Economic Inequality in the United States
1) In the United States, the poorest 20 percent of the household receive approximately ________
percent of market income.
A) 0.9
B) 7.5
C) 9.5
D) 12.5
E) 20.0
2) In the United States, the poorest 20 percent of households receive somewhat less than
________ percent of market income.
A) 21
B) 13
C) 19
D) 1
E) 8
3) In the United States, the richest 20 percent of households receive approximately ________
percent of total income.
A) 33
B) 12
C) 50
D) 75
E) 20
4) In the United States, the poorest 20 percent of households receive about ________ percent of
total income while the richest 20 percent receive about ________ percent of total income.
A) 1; 50
B) 8; 71
C) 12.; 32
D) 13; 68
E) 20; 20
5) Which of the following statements is true regarding the distribution of income in the United
States?
A) The Lorenz curve shows that incomes are distributed fairly.
B) The line of equality shows that incomes are distributed equally.
C) Income inequality occurs because the richest 20 percent of households receive about 50
percent of income.
D) The inequality in the distribution of income can be seen because the Lorenz curve lies above
the line of equality.
E) Both answers C and D are correct.
6) As a tool that is used to measure inequality in the distribution of income, the Lorenz curve
graphs
A) the cumulative percentage of income against the cumulative percentage of households.
B) the percentage of total income received by each given percentage of households.
C) the mean income, median income, and mode income against the percentage of households.
D) the mean income received by households over time.
E) the cumulative percentage of income against the mean and median income.
7) A Lorenz curve for income shows the
A) demand for Lorenz cough drops.
B) average income graphed against the average number of people in the household.
C) cumulative percentage of income graphed against cumulative percentage of households.
D) relationship between income and wealth.
E) total amount of income graphed against the total number of households.
8) Lorenz curves are
A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.
E) straight lines.
9) A Lorenz curve
A) is identical to the straight line sloping up at a 45° angle.
B) lies above the straight line sloping up at a 45° angle.
C) lies below the straight line sloping up at a 45° angle.
D) starts below the straight line sloping up at a 45° angle and then ends above this line.
E) starts above the straight line sloping up at a 45° angle and then ends below this line.
10) If the Lorenz curve for income moves upward toward the 45° line, then the
A) distribution of income has become more unequal.
B) distribution of income has become more equal.
C) mean (average) household income increased.
D) total household income increased.
E) total household income decreased.
11) If all households in a nation receive the same income, the nation’s Lorenz curve
A) is horizontal.
B) is vertical.
C) is a 45° line.
D) runs along the horizontal axis until it reaches 50 percent of households and then runs
vertically up to 100 percent of income.
E) runs along the horizontal axis until it reaches 100 percent of households and then runs
vertically up to 100 percent of income.
12) Country A has a more equal distribution of income than country B if
A) country A’s Lorenz curve is closer to the line of equality than is country B’s Lorenz curve.
B) country B’s Lorenz curve is closer to the line of equality than is country A’s Lorenz curve.
C) country A’s Lorenz curve is just as close to the line of equality as is country B’s Lorenz curve.
D) country A’s Lorenz curve lies below country B’s Lorenz curve at low levels of income and
above it at high levels of income.
E) None of the above because it is impossible to compare income inequalities across countries.
13) Looking at the Lorenz curves for income distribution in all the world’s nations, we would
find that
A) some nations have Lorenz curves that lie above the 45° line, other nations have Lorenz curves
that lie below the 45° line, but no nation has a Lorenz curve that lie on the 45° line.
B) all nations have Lorenz curves that lie above the 45° line.
C) all nations have Lorenz curves that lie below the 45° line.
D) some nations have Lorenz curves that lie above the 45° line, other nations have Lorenz curves
that lie below the 45° line, and still other nations have a Lorenz curve that lies on the 45° line.
E) None of the above answers is correct.
Group
Percent of
income
Poorest 20%
5
Second poorest
20%
10
Middle 20%
15
Second richest
20%
25
Richest 20%
45
The table gives the distribution of income in Miseria.
14) What percent of income is earned by the richest forty percent?
A) 5 percent
B) 20 percent
C) 70 percent
D) 55 percent
E) More information is needed to answer the question.
15) What percent of income is earned by the richest 60 percent of the population?
A) 25 percent
B) 30 percent
C) 55 percent
D) 85 percent
E) More information is needed to answer the question.
16) What percent of income is earned by the poorest 60 percent of the population?
A) 25 percent
B) 30 percent
C) 55 percent
D) 15 percent
E) More information is needed to answer the question.
17) What percent of wealth is owned by the poorest forty percent of the population?
A) 0 percent
B) 2 percent
C) 5 percent
D) 10 percent
18) What percent of income is earned by the richest 80 percent of the population?
A) 25 percent
B) 95 percent
C) 100 percent
D) 5 percent
E) More information is needed to answer the question.
19) The above table shows the distribution of income in two countries, Alpha and Beta. Based on
these distributions of income,
A) Country Beta has more equal income distribution than does Country Alpha.
B) both countries have equal distributions because 100 percent of the incomes are accounted for.
C) the Lorenz Curve for country Beta is closer to the line of equality.
D) Country Alpha has a more equal distribution of income than does Country Beta.
E) It is impossible to answer the question without more information.
20) The above table shows the distribution of income in two countries, Alpha and Beta. In
Country Alpha, the poorest 20 percent receive ________ percent of total income.
A) 5
B) 9
C) 1
D) 19
E) 14
21) The above table shows the distribution of income in two countries, Alpha and Beta. In
Country Beta, the richest 40 percent of households receive ________ percent of total income.
A) 20
B) 40
C) 60
D) 80
E) 100
22) In the figure above, the nation with the most equal distribution of income is nation
A) A.
B) B.
C) C.
D) The distribution of income is the same in all three nations because their Lorenz curves can be
plotted on the same diagram.
E) It is impossible to determine with the information given.
23) In the figure above, the nation with the least equal distribution of income is nation
A) A.
B) B.
C) C.
D) The distribution of income is the same in all three nations because their Lorenz curves can be
plotted on the same diagram.
E) It is impossible to determine with the information given.
24) In the figure above, the nation with the highest average income is nation
A) A.
B) B.
C) C.
D) The average income is the same in all three nations because their Lorenz curves can be
plotted on the same diagram.
E) It is impossible to determine with the information given.
25) In the United States, it is the case that
A) both income and wealth are equally distributed.
B) wealth is equally distributed but income is distributed unequally.
C) income is equally distributed but wealth is distributed unequally.
D) both income and wealth are unequally distributed and wealth is distributed more unequally
than is income.
E) both income and wealth are unequally distributed and income is distributed more unequally
than is wealth.
26) Comparing the wealth and income distribution in the United States, we see that
A) wealth is distributed less equally than income.
B) because wealth and income are different terms for the same thing, the distributions are the
same.
C) income is distributed less equally than wealth.
D) we cannot compare the distribution of wealth and income.
E) None of the above answers is correct.
27) In the United States, the
A) distribution of income has become more equal since 1967.
B) Lorenz curve for income and the Lorenz curve for wealth are equally close to the line of
equality.
C) Lorenz curve for income is closer to the line of equality than is the Lorenz curve for wealth.
D) Lorenz curve for wealth is closer to the line of equality than is the Lorenz curve for income.
E) None of the above answers is correct.
28) Which of the following statements is correct?
A) Wealth inequality in the United States is greater than income inequality.
B) Income inequality in the United States is greater than wealth inequality.
C) Income includes all the things owned by a household at a certain point in time.
D) The top fifth of households have a greater share of the nation’s income than the nation’s
wealth.
E) The fraction of wealth owned by the bottom 20 percent of households is larger than the
fraction income earned by the bottom 20 percent of households.
29) Looking at the income distribution in the United States since 1968, we see that
A) only the lowest 20 percent and highest 20 percent increased their shares of income.
B) the lower 50 percent increased its share of income and the upper 50 percent stayed the same.
C) the highest 20 percent increased its share of income.
D) all the 20 percent groups increased their shares of income.
E) the lower 50 percent increased its share of income and the upper 50 percent decreased its
share of income.
30) In the United States, since 1968 the share of income received by the richest 20 percent of
households has ________ and the share received by the other 80 percent of households has
________.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) not changed; not changed
E) increased; not changed
31) In the United States since 1968 income has become ________ equally distributed and since
the 1970s economic mobility among income groups has ________.
A) more; increased
B) more; decreased
C) less; increased
D) less; decreased
E) None of the above answers is correct because economic mobility among income groups
cannot be measured.
32) Since 1968 in the United States, the distribution of income has changed and the group that
benefited the most has been the
A) better educated.
B) less educated.
C) low-skilled workers.
D) middle class, that is the group in the middle 20 percent of the income distribution.
E) None of the above answers is correct because all groups benefited equally.
33) The factor that leads to the largest difference in households’ incomes is
A) race.
B) education.
C) gender.
D) size of household.
E) location of household.
34) ________ is the single biggest factor affecting income distribution in the United States.
A) Location of household
B) Type of household
C) Education
D) Age of household
E) Gender
35) Of the following major characteristics that lead to income disparity, the factor with the
smallest impact is
A) sex.
B) race.
C) region of the country.
D) education.
E) number of people in the household.
36) The highest-income household in the United States today is likely to be a college-educated
A) married white couple.
B) single white female.
C) married Asian couple.
D) single black male.
E) single black female.
37) Measured annual income inequality overstates actual lifetime inequality because
A) poverty levels vary across states.
B) homeless people are not always counted.
C) different households are in different stages in the life cycle.
D) people tend to overstate their incomes.
E) people differ in the amount of education they have attained.
38) The measured inequality of annual income ________ the actual inequality of lifetime income
because ________.
A) overstates; different households are at different stages in the life cycle
B) overstates; the Lorenz curves differ for income and wealth
C) understates; people live in different geographic areas
D) understates; people have different levels of education
E) overstates; different households have different amounts of wealth
39) Poverty for a household is defined as the state of
A) having a total income that is below the median total income.
B) having an income that can be spent on food, shelter, and clothing that is below the median for
food, shelter, and clothing.
C) income below what is thought fair.
D) income below what is thought necessary for food, shelter, and clothing.
E) having an income that is below average.
40) In the United States in 2008, a family of four was considered to be living below the poverty
line only if its household income was less than approximately
A) $400 per year.
B) $4,000 per year.
C) $11,789 per year.
D) $22,800 per year.
E) $35,800 per year.
41) In the United States in 2008, the Census Bureau determined that approximately ________
million Americans lived in households that had incomes below the poverty line.
A) 39
B) 22
C) 84
D) 11
E) 112
42) In 2008, the poverty rate in the United States level was approximately ________ percent.
A) 3
B) 13
C) 32
D) 20
E) 26
43) Looking at the U.S. poverty rate by race, we see that
A) the poverty rates by race are now equal.
B) whites have a higher poverty rate than do blacks.
C) Hispanics and blacks have a higher poverty rate than whites.
D) whites have a nearly zero poverty rate while Hispanics and blacks are near 20 percent.
E) whites and blacks have higher poverty rates than do Hispanics.
44) Which type of household has the lowest poverty rate?
A) black
B) Hispanic
C) white
D) White and Hispanic are almost tied.
E) White and black are almost tied.
45) Which of the following is correct about the United States?
A) Income is equally distributed.
B) Wealth is equally distributed.
C) Income is equally distributed but wealth is unequally distributed because of inheritances.
D) Both wealth and income are unequally distributed.
E) Both wealth and income are equally distributed.
46) If the income distribution is more unequal than the wealth distribution, then the
A) Lorenz curve for income will be farther away from the line of equality than the Lorenz curve
for wealth.
B) government has imposed a higher tax rate on income.
C) Lorenz curve for wealth will be farther away from the line of equality than the Lorenz curve
for income.
D) Lorenz curve for wealth will lie above the Lorenz curve for income.
E) It is not possible to draw the Lorenz curve for wealth on the same figure with the Lorenz
curve for income.
47) In the United States since 1967, the share of money income received by the richest 20
percent of households has ________ and the share of income received by the lowest 20 percent
of households has ________.
A) increased; not changed
B) not changed; increased
C) not changed; decreased
D) decreased; increased
E) increased; decreased
48) In the United States in 2004, the wealthiest 1 percent of households held approximately
________ percent of all wealth.
A) 1
B) 13
C) 27
D) 34
E) 88
49) Of all the characteristics that lead to income inequality, the factor with the largest impact is
A) race.
B) sex.
C) age.
D) education.
E) location.
50) The inequality of annual income
A) overstates the amount of lifetime inequality.
B) understates the amount of lifetime inequality.
C) cannot change from one year to the next.
D) is about the same as the amount of lifetime inequality.
E) cannot be compared to the amount of lifetime inequality.
51) Which of the following statements about poverty is (are) correct?
i. Blacks and Hispanics have higher poverty rates than whites.
ii. Over the last 40 years, poverty rates for all groups have generally increased.
iii. Most household spells of poverty last well beyond 9 months.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
19.2 How Inequality and Poverty Arise
1) Workers who have invested in education and training
A) are more likely to find jobs that are not rewarding.
B) have a higher value of marginal product.
C) have a more difficult time finding a job because their wage rate is higher.
D) have identical supply curves to otherwise similar workers who have not invested in education
and training.
E) None of the above answers is correct.
2) The demand for labor
i. depends on the availability of labor.
ii. decreases when the supply of labor increases.
iii. depends on the value of the marginal product of labor.
A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
3) One reason why economists earn more than Taco Bell workers is because economists have a
________ value of marginal product of labor than Taco Bell workers.
A) lower
B) higher
C) similar
D) more convex
E) more concave
4) The gap between the salary of Tom Cruise and an unknown actor is over $15 million per
movie. This difference means that Mr. Cruise’s value of marginal product is
A) over $15 million greater than the value of the marginal product of the unknown actor.
B) less than $15 greater than value of the marginal product of the unknown actor.
C) $15 million greater than the value of the marginal product of the unknown actor.
D) equal to the value of the marginal product of the unknown actor.
E) More information is need to make the comparison.
5) If a firm is willing to pay a high-skilled worker $25 per hour and a low-skilled worker $10 per
hour then the value of marginal product of skill is
A) $15.
B) $40.
C) $10.
D) $25
E) There is not enough information to answer this question.