Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 20/Income Inequality and Poverty ❖ 41
9. Utilitarianism is
a.
a liberal religion that focuses on individual rights.
b.
a political philosophy that believes the government should choose policies deemed to be just by an
impartial observer.
c.
a political philosophy that believes the government should not redistribute income.
d.
a political philosophy that believes the government should choose policies to maximize the total
utility of society.
10. According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the
people with the
a.
lowest marginal utility of income.
b.
highest marginal utility of income.
c.
highest total utility from their income.
d.
most productive labor resources.
11. The founders of utilitarianism include
a.
A. C. Pigou and John Maynard Keynes.
b.
Jeremy Bentham and John Stuart Mill.
c.
Augustin Cournot and Jean B. Say.
d.
A. Kondratieff and Thomas Malthus.
12. Which of the following statements is characteristic of utilitarianism?
a.
An extra dollar of income provides higher marginal utility to a poor person than to a rich person.
b.
Social policies should be created behind a "veil of ignorance."
c.
Society should strive to maximize the utility of its wealthiest member.
d.
Equality of opportunity is more important than equality of incomes.
13. According to utilitarians, the ultimate objective of public actions should be to
a.
enhance the income of the rich.
b.
ensure an egalitarian distribution of income.
c.
maximize the sum of individual utility.
d.
provide for the betterment of the poor.
14. The concept of utility is fundamental to utilitarianism and describes the
a.
optimal distribution of wealth in society.
b.
level of satisfaction derived from a person's circumstances.
c.
method by which society chooses to allocate resources.
d.
method whereby wealth is stored.
42 ❖ Chapter 20/Income Inequality and Poverty
15. The English philosophers Jeremy Bentham and John Stuart Mill founded the school of thought called
a.
liberalism.
b.
libertarianism.
c.
mobilism.
d.
utilitarianism.
16. A utilitarian government must
a.
calculate the utility of each individual in society.
b.
avoid enacting any policies that redistribute income from the rich to the poor.
c.
balance the gains from greater equality against the losses from distorted incentives.
d.
pursue policies that do not affect the middle class.
17. A utilitarian government will pursue policies that redistribute income from the rich to the poor. One problem
with these policies is that
a.
everyone has less incentive to work hard.
b.
the rich will work harder while the poor will not.
c.
the poor will work harder while the rich will not.
d.
everyone in the middle class ends up worse off.
18. In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identi-
fied. As long as the government only has "leaky buckets" at its disposal,
a.
the costs of welfare programs will exceed the benefits.
b.
it should not try to reach complete equality in income.
c.
income equality will be the best policy option.
d.
equality of economic opportunity will reduce society’s utility.
19. The goal of utilitarians is to
a.
apply the logic of individual decision making to questions concerning morality and public policy.
b.
measure happiness and satisfaction.
c.
redistribute income based on the assumption of increasing marginal utility.
d.
All of the above are correct.
20. The goal of utilitarians is to
a.
punish crimes and enforce voluntary agreements but not to redistribute income.
b.
redistribute income until each person has equal earnings.
c.
redistribute income until the marginal utility of the wealthiest person equals the total utility of the
poorest person.
d.
redistribute income based on the assumption of diminishing marginal utility.
Chapter 20/Income Inequality and Poverty ❖ 43
21. Utilitarians believe
a.
that the government should choose just policies as evaluated by an impartial observer behind a “veil
of ignorance.”
b.
in the assumption of diminishing marginal utility.
c.
that everyone in society should have equal utility.
d.
that the government should not redistribute income.
22. Suppose a society consists of only two people, John and Jane. A utilitarian would say that the proper role of
government in this society is to
a.
equalize the incomes of John and Jane.
b.
equalize John’s utility and Jane’s utility.
c.
equalize John’s marginal utility and Jane’s marginal utility.
d.
maximize the sum of John’s utility and Jane’s utility.
23. A society consists of three individuals: Arthur, Billie, and Chris. In terms of income and utility, Arthur is cur-
rently best-off, Billie ranks in the middle, and Chris is worst-off. Which of the following statements is cor-
rect?
a.
Utilitarianism suggests that government policies should strive to maximize the sum of all three
individuals’ utility.
b.
Liberalism suggests that government policies should strive to maximize the sum of Billie’s utility
and Chris’s utility.
c.
Libertarianism suggests that government policies should strive to maximize Chris’s utility.
d.
Mobilism suggests that the government policies should strive to make Billie better off than Arthur.
24. The utilitarian case for redistributing income is based on the assumption of
a.
collective consensus.
b.
a notion of fairness engendered by equality.
c.
diminishing marginal utility.
d.
rising marginal utility.
25. The concept of diminishing marginal utility is embedded in the utilitarian rationale for
a.
trickle-down effects.
b.
enhancing market efficiency.
c.
redistributing income.
d.
maintaining the status quo income distribution.
44 ❖ Chapter 20/Income Inequality and Poverty
26. Diminishing marginal utility suggests that
a.
more is always preferred to less.
b.
the well-being of society is maximized when the distribution of income is equal.
c.
the poor are less efficient at spending money than the rich.
d.
the poor receive more satisfaction from the last dollar spent than the rich.
27. Ms. Spring currently earns $100,000 a year, while her junior partner, Mr. Fall, earns $55,000 a year. From the
perspective of a utilitarian, if both of their incomes are subject to diminishing marginal utility, taking a dollar
from Ms. Spring and giving it to Mr. Fall will
a.
increase society's total utility.
b.
lower Ms. Spring's marginal utility of income.
c.
increase Mr. Fall's marginal utility of income.
d.
lower society’s total utility.
28. "An extra dollar of income gives more additional satisfaction to a poor person than to a rich
person." This is an important assumption of which political philosophy?
a.
utilitarianism
b.
liberalism
c.
libertarianism
d.
republicanism
29. Which of the following statements illustrates diminishing marginal utility?
a.
An extra dollar of income to a poor person provides that person with more additional utility than
does an extra dollar to a rich person.
b.
An extra dollar of income to a poor person provides that person with less additional utility than
does an extra dollar to a rich person.
c.
An extra dollar of income to a poor person provides that person with the same additional utility as
does an extra dollar to a rich person.
d.
An extra dollar of income to a poor person provides that person with the same total utility as does
an extra dollar to a rich person.
30. Suppose society consists of three individuals: Andy, Bill, and Carl. Andy has $20,000 of income, Bill has
$40,000 of income, and Carl has $60,000 of income. A utilitarian would argue that
a.
taking $1 from Carl and giving it to Andy would increase society’s total utility.
b.
taking $1 from Carl and giving it to Bill would increase society’s total utility.
c.
taking $1 from Bill and giving it to Andy would increase society’s total utility.
d.
All of the above are correct.
Chapter 20/Income Inequality and Poverty ❖ 45
31. Suppose society consists of four individuals: Andy, Bill, Carl, and David. Andy has $20,000 of income, Bill
has $40,000 of income, Carl has $60,000 of income, and David has $80,000 of income. A utilitarian would
argue that
a.
taking $1 from Bill and giving it to Carl would increase society’s total utility.
b.
taking $1 from Carl and giving it to Andy would increase society’s total utility.
c.
taking $1 from Carl and giving it to David would increase society’s total utility.
d.
taking $1 from Bill and giving it to David would increase society’s total utility.
32. Which group (or groups) would be the most upset by wide variation in the income distribution?
a.
utilitarians
b.
utilitarians and liberals
c.
libertarians
d.
liberals and libertarians
33. The maximin criterion for government policies is associated with
a.
the school of thought called utilitarianism.
b.
the school of thought called liberalism.
c.
the school of thought called libertarianism.
d.
the school of thought called stoicism.
34. Liberalism suggests that public policies should aim to
a.
maximize the sum of utility of everyone in society.
b.
maximize the well-being of the average person in society.
c.
maximize the well-being of the worst-off person in society.
d.
minimize the difference between the utility of the best-off person in the society and the utility of the
worst-off person in society.
35. A society consists of three individuals: Arthur, Billie, and Chris. In terms of income and utility, Arthur is cur-
rently best-off, Billie ranks in the middle, and Chris is worst-off. Which of the following statements is cor-
rect?
a.
Utilitarianism suggests that government policies should strive to maximize Billie’s utility.
b.
Liberalism suggests that government policies should strive to increase Chris’s utility.
c.
Libertarianism suggests that government policies should strive to maximize Arthur’s utility.
d.
Mobilism suggests that government policies should strive to make Chris better off than Billie.
46 ❖ Chapter 20/Income Inequality and Poverty
36. Liberalism is the political philosophy espoused by
a.
Robert Nozick.
b.
John Stuart Mill.
c.
John Rawls.
d.
Jeremy Bentham.
37. The maximin criterion is attributed to which political philosophy?
a.
utilitarianism
b.
liberalism
c.
libertarianism
d.
repubicanism
38. Liberalism aims to raise the welfare of the worst-off person in society. This rule is called the
a.
minimax regret criterion.
b.
conservative approach.
c.
Nozick criterion.
d.
maximin criterion.
39. Raising the welfare of the worst-off person in society is an important goal of which political philosophy?
a.
utilitarianism
b.
liberalism
c.
libertarianism
d.
secularism
40. “The government should choose policies deemed to be just, as evaluated by an impartial observer
behind a ‘veil of ignorance.’” This statement is most closely associated with which political philosophy?
a.
liberalism
b.
utilitarianism
c.
libertarianism
d.
welfarism
41. Suppose that Jamal is moving to a state where personal incomes are distributed randomly. If Jamal believes in
liberalism, he would prefer
a.
an income distribution that is relatively equal.
b.
that everyone has the same work opportunities and market-determined wage rates.
c.
that private property be transformed to government property to safeguard people’s incomes.
d.
less economic assistance to the poor because it distorts the price system.
Chapter 20/Income Inequality and Poverty ❖ 47
42. The philosopher John Rawls argued that
a.
people would choose a more equal distribution of income if they had to determine an economic
distribution system before knowing their place in it.
b.
people would choose income inequality to allow the maximum use of their individual talents.
c.
government has a role to ensure income equality to prevent social unrest.
d.
people would choose equal opportunity because it is morally right.
43. Liberalism is founded on a premise that behind a "veil of ignorance,"
a.
justice cannot be agreed upon.
b.
everyone’s income should be equal.
c.
everyone would agree to "just" rules to reallocate income.
d.
society should maximize the sum of individual utilities.
44. According to the doctrine of liberalism, principles of justice are the result of
a.
fair agreement and bargain.
b.
command-and-control policies.
c.
domination of the powerful by the weak.
d.
workers owning the factors of production.
45. The political philosophy that views the redistribution of income as a form of social insurance is
a.
utilitarianism
b.
liberalism
c.
libertarianism
d.
welfarism
46. The maximin criterion suggests that social policy should
a.
expropriate the factors of production from the capitalist class.
b.
ensure an equal distribution of income.
c.
elevate the well-being of those at the bottom of the income distribution.
d.
elevate the well-being of all workers.
47. The rule for redistribution proposed by John Rawls in his book A Theory of Justice is called the
a.
"optimal ignorance" rule.
b.
libertarian justice rule.
c.
maximin criterion.
d.
egalitarian criterion.
48 ❖ Chapter 20/Income Inequality and Poverty
48. According to the maximin criterion, income should be transferred from the rich to the poor as long as it
a.
raises the well-being of the least fortunate.
b.
does not alter incentives to work and save.
c.
promotes an equal distribution of income.
d.
does not lower the welfare of the elderly.
49. If society chose to maximize total utility rather than minimum utility,
a.
society would achieve perfect income equality.
b.
society would achieve the maximin objective.
c.
its justice would be more utilitarian than Rawlsian.
d.
its justice would be more Rawlsian than utilitarian.
50. Would the maximin criterion achieve perfect income equality?
a.
Yes. There would be no way to reallocate resources to raise the utility of the poor.
b.
Yes. The maximin criterion would eliminate poverty.
c.
No. It is impossible for complete equality to benefit the worst-off people in society.
d.
No. Complete equality would reduce incentives to work, which would reduce total income, which
would reduce the incomes of the worst-off people in society.
51. The goal of liberalism is to
a.
redistribute income based on the assumption of diminishing marginal utility.
b.
redistribute income in order to improve the well-being of the worst-off person in society.
c.
punish crimes and enforce voluntary agreements but not to redistribute income.
d.
measure happiness and satisfaction.
52. Liberals believe
a.
that the government should choose just policies as evaluated by an impartial observer behind a “veil
of ignorance.”
b.
in the assumption of diminishing marginal utility.
c.
that everyone in society should have equal utility.
d.
that the government should not redistribute income.
53. Libertarians believe that
a.
it is more important to evaluate the process by which economic outcomes are produced than the
outcomes themselves.
b.
government should attempt to redistribute income from the rich to the poor when the gap between
rich and poor is more than 20%.
c.
equality of income is more important than equality of opportunity.
d.
it is more important to evaluate economic outcomes first and then the process that produced them.
Chapter 20/Income Inequality and Poverty ❖ 49
54. Which group would be the least upset by wide variation in the income distribution?
a.
utilitarians
b.
liberals
c.
libertarians
d.
Each group would be equally upset.
55. "Only individual members of society earn income, not society itself." This statement is most
closely associated with the political philosophy of a
a.
utilitarian.
b.
liberal.
c.
libertarian.
d.
None of the above is correct.
56. “The government should punish crimes and enforce voluntary agreements but not redistribute
income.” This statement is most closely associated with which political philosophy?
a.
liberalism
b.
utilitarianism
c.
libertarianism
d.
welfarism
57. “Equality of opportunities is more important than equality of incomes.” This statement would be
most likely attributed to which political philosophy?
a.
utilitarianism
b.
liberalism
c.
libertarianism
d.
welfarism
58. Robert Nozick criticizes Rawls's concept of justice by using an example of
a.
minimum wage laws.
b.
the grade distribution in a class.
c.
a leaky bucket.
d.
the price of tea in China.
59. Which political philosophy focuses on the process of determining the distribution of income rather than on the
outcome?
a.
utilitarianism
b.
liberalism
c.
libertarianism
d.
welfarism
50 ❖ Chapter 20/Income Inequality and Poverty
60. Libertarians believe that in considering economic fairness, one should primarily consider the
a.
outcome of the system.
b.
process by which outcomes arise.
c.
maximin criterion.
d.
maximization total social utility.
61. Libertarianism identifies a redistribution of income role for government when
a.
individual incomes vary widely.
b.
the income distribution is altered by illegal means (e.g. theft).
c.
a social planner is needed to smooth out the transitory income stream.
d.
workers lose their jobs as a result of structural changes in the economy.
62. In general, which of the following would libertarians argue is more important than equal outcomes?
a.
equal opportunities
b.
equal incomes
c.
providing a social safety net
d.
offering the opportunity to purchase social insurance
63. Bill earns more than Donna. A legislator proposes taxing Bill to supplement Donna's income. A libertarian
would view this proposal as
a.
a way to increase social justice.
b.
a way to enhance Donna's income in a socially responsible way.
c.
validation of the superiority of a libertarian maximin criterion over Rawlsian social justice.
d.
an inappropriate role for government, since government should not redistribute income.
64. The goal of libertarianism is to
a.
redistribute income based on the assumption of diminishing marginal utility.
b.
redistribute income in order to maximize the well-being of the worst-off person in society.
c.
punish crimes and enforce voluntary agreements but not to redistribute income.
d.
measure happiness and satisfaction.
65. Caroline earns more than John. Under a new tax system, some of the taxes paid by Caroline would go to John.
A libertarian would
a.
support the system because an extra dollar earned by Caroline would be worth less to her than an
extra dollar given to John.
b.
oppose the system if it redistributed income in the presence of equal opportunity.
c.
oppose the system because an extra dollar earned by Caroline would be worth more to her than an
extra dollar given to John.
d.
support the system if it maximized the well-being of the poorest member of society.
Chapter 20/Income Inequality and Poverty ❖ 51
66. Libertarians believe that
a.
the government should choose just policies as evaluated by an impartial observer behind a “veil of
ignorance.”
b.
the government should aim to maximize the well-being of the worst-off person in society.
c.
everyone in society should have equal utility.
d.
the government should not redistribute income.
INCOME INEQUALITY AND POVERTY
1. Which of the following statements is not correct?
a.
Libertarians are opposed to redistributing income.
b.
Critics of the welfare system argue that it breaks up families.
c.
One of the problems with measuring income inequality is valuing in-kind transfers.
d.
Utilitarians believe that the government should punish crimes but should not redistribute income.
2. Which of the following statements is not correct?
a.
Two key elements of welfare reform are work requirements and limiting the time that recipients can
receive benefits.
b.
The Earned Income Tax Credit (EITC) is very similar to a negative income tax.
c.
Minimum wage laws will likely increase unemployment.
d.
The elderly are more likely to be poor than single mothers.
3. Which of the following statements is correct?
a.
Followers of the liberalism political philosophy believe that society should maximize the total of
individual utilities.
b.
The poverty line is adjusted for regional differences in the costs of raising children.
c.
One advantage to the Earned Income Tax Credit (EITC) is that it benefits the working poor.
d.
Libertarians pursue policies to redistribute income from the rich to the poor.
4. The best government policy to reduce poverty is
a.
a minimum wage law because the resulting unemployment is small in comparison to the benefits to
people it helps.
b.
an expanded welfare program because people must have an additional “need” such as small
children or a disability.
c.
an in-kind transfer because it ensures that the poor receive what they need most such as food or
shelter.
d.
not obvious. Government programs to reduce poverty have many advantages but also many
disadvantages.
52 ❖ Chapter 20/Income Inequality and Poverty
5. Which of the following programs would be opposed by philosopher John Rawls?
a.
a negative income tax
b.
the Supplemental Security Income (SSI) program
c.
a tax plan creating a perfectly egalitarian income distribution
d.
Rawls would oppose all of the programs.
6. When designing public policies, which income group would philosopher John Rawls argue needs the most
attention?
a.
Individuals located in the bottom fifth of the income distribution.
b.
Individuals located at the average income level.
c.
Individuals located in the top fifth of the income distribution.
d.
Individuals located in the top five percent of the income distribution.
7. Which of the following programs to alleviate poverty would be most favored by philosopher Robert Nozick
and why?
a.
A negative income tax because it would maximize the minimum income of members of society.
b.
An Earned Income Tax Credit (EITC) because a policy that rewards the working poor would be the
most just.
c.
An in-kind transfer program because it would maximize the total utility of all members of society.
d.
None of the programs would be favored because each of them forcibly redistributes income that
was fairly, if not equally, earned.
8. Which of the following programs to alleviate poverty would be most favored by philosopher Robert Nozick?
a.
a negative income tax
b.
an Earned Income Tax Credit (EITC)
c.
an in-kind transfer program
d.
None of the programs would be favored by Nozick.
Scenario 20-1
Suppose that a society is made up of five families whose incomes are as follows:
$120,000; $90,000; $30,000; $30,000; and $18,000.
The federal government is considering two potential income tax plans:
Plan A is a negative income tax plan where the taxes owed equal 1/3 of income minus $20,000.
Plan B is a two-tiered plan where families earning less than $35,000 pay no income tax and families
earning more than $35,000 pay 10% of their income in taxes. The income tax revenue collected from those
families earning over $35,000 is then redistributed equally to those families earning less than $35,000.
Chapter 20/Income Inequality and Poverty ❖ 53
9. Refer to Scenario 20-1. Assuming that utility is directly proportional to the cash value of after-tax income,
which government policy would an advocate of utilitarianism prefer?
a.
Plan A
b.
Plan B
c.
either Plan A or Plan B
d.
neither Plan A nor Plan B because any plan that forcibly redistributes income is against the
philosophy
10. Refer to Scenario 20-1. Assuming that utility is directly proportional to the cash value of after-tax income,
which government policy would an advocate of liberalism prefer?
a.
Plan A
b.
Plan B
c.
either Plan A or Plan B
d.
neither Plan A nor Plan B because any plan that forcibly redistributes income is against the
philosophy
11. Refer to Scenario 20-1. Assuming that utility is directly proportional to the cash value of after-tax income,
which government policy would an advocate of libertarianism prefer?
a.
Plan A
b.
Plan B
c.
either Plan A or Plan B
d.
neither Plan A nor Plan B because any plan that forcibly redistributes income is against the
philosophy
12. Binding minimum-wage laws
a.
are most effective at alleviating poverty when labor demand is highly elastic.
b.
force a market imbalance between the supply and demand for labor.
c.
increase the efficiency of labor markets.
d.
are typically associated with a rise in employment among the poor.
54 ❖ Chapter 20/Income Inequality and Poverty
Figure 20-5
13. Refer to Figure 20-5. If the government imposes a minimum wage above Wo, it is likely to
a.
increase employment to a level above Qo.
b.
reduce employment to a level below Qo.
c.
provide more income to the working poor than they collectively received before the minimum wage
was set.
d.
have no effect on employment.
14. Refer to Figure 20-5. An effective minimum wage would be set at a level
a.
above Wo, and employment would rise above Qo.
b.
above Wo, and employment would fall below Qo.
c.
below Wo, and employment would rise above Qo.
d.
below Wo, and employment would fall below Qo.
15. Minimum wage laws
a.
benefit all unskilled workers.
b.
create unemployment, but if demand is relatively elastic, the unemployment effects will be minor.
c.
may help the nonpoor, such as teenagers from wealthy families.
d.
reduce poverty by reducing unemployment.
Chapter 20/Income Inequality and Poverty ❖ 55
16. A binding minimum wage
a.
affects employees but not employers.
b.
lowers the productivity of workers.
c.
raises the cost of labor to firms.
d.
All of the above are correct.
17. Critics of the minimum wage argue that
a.
labor demand is inelastic so firms can adjust production.
b.
too many older employees benefit at the expense of teenage workers.
c.
many minimum-wage earners are teenagers from middle-class families.
d.
All of the above are correct.
18. Economists who support minimum-wage legislation are likely to believe that the
a.
demand for unskilled labor is relatively inelastic.
b.
demand for unskilled labor is relatively elastic.
c.
supply of unskilled labor is relatively elastic.
d.
supply of unskilled labor is relatively inelastic.
19. Which of the following statements is correct?
a.
A disadvantage of a minimum-wage law is that it may benefit unskilled workers who are not low-
income workers.
b.
A disadvantage of a negative income tax program is that a poor person who chooses not to work
many hours would receive a cash benefit.
c.
A disadvantage of an Earned Income Tax Credit (EITC) is that a person who is unable to work due
to a disability does not benefit from the program.
d.
All of the above are correct.
20. Which of the following statements is correct?
a.
An advantage of a minimum-wage law is that it may benefit unskilled workers who are not low-
income workers.
b.
An advantage of a negative income tax program is that a poor person who chooses not to work
many hours would receive a cash benefit.
c.
An advantage of an Earned Income Tax Credit (EITC) is that a person who is unable to work due to
a disability does not benefit from the program.
d.
Welfare reform enacted in 1996 limited the amount of time recipients could stay on welfare.
56 ❖ Chapter 20/Income Inequality and Poverty
21. Which of the following statements is not correct?
a.
An advantage of an in-kind transfer is that it prevents an alcoholic from spending a cash benefit on
alcohol.
b.
An advantage of the Supplemental Security Income (SSI) program is that it benefits the sick and
disabled.
c.
An advantage of a negative income tax program is that the poor must work in order to be eligible.
d.
Minimum wage laws result in higher unemployment among those groups of workers affected by the
minimum wage.
22. Which of the following statements about the minimum wage is correct?
a.
An increase in the minimum wage enhances the well-being of all unskilled workers.
b.
An increase in the minimum wage has no effect on the well-being of middle-class families.
c.
Advocates of the minimum wage argue that the demand for labor is relatively inelastic.
d.
Critics of the minimum wage argue that it is an undesirable way of helping the poor because it is
costly to the government.
23. Many Democrats who campaigned in the 2006 elections supported raising the U.S. minimum wage. Critics of
raising the minimum wage argue that minimum-wage laws are
a.
too expensive for local governments to fund.
b.
too expensive for local governments to administer.
c.
imprecise in their ability to help the working poor.
d.
easy for businesses to pay.
24. Many Democrats who campaigned in the 2006 elections supported raising the U.S. minimum wage. Support-
ers of raising the minimum wage argue that minimum-wage laws are
a.
a tax-free way to help the working poor; after all, businesses bear the burden of paying higher
wages, not the government.
b.
better than the Earned Income Tax Credit (EITC) in targeting the working poor; after all, the EITC
may benefit teenagers from middle-class families who work summer jobs at the minimum wage.
c.
better than in-kind transfers such as food stamps in providing food rather than unhealthy items such
as drugs or alcohol.
d.
a way to increase employment of those likely to earn the minimum wage.
Chapter 20/Income Inequality and Poverty ❖ 57
25. Which of the following statements is not correct?
a.
An advantage of the Earned Income Tax Credit (EITC) is that it targets the working poor better
than the minimum wage because it does not benefit teenagers from middle-class families who work
summer jobs at the minimum wage.
b.
A disadvantage of in-kind transfer programs such as food stamps is that they force recipients to
purchase from a restricted set of items which may not include things that the poor need the most
such as diapers or cleaning supplies.
c.
A disadvantage of minimum wage laws is that they are expensive for state and local governments to
fund.
d.
Effective minimum wage laws create a surplus of labor.
26. A disadvantage associated with a minimum wage law to reduce poverty is that it
a.
encourages illegitimate births because single women with children receive higher payments.
b.
rewards laziness because it provides payments to those with low incomes regardless of their work
effort.
c.
focuses on children and the disabled while neglecting the working poor.
d.
may benefit the teenage children of families who are not poor.
27. A disadvantage associated with in-kind transfers to reduce poverty is that they
a.
are more expensive than a negative income tax.
b.
are inefficient because they do not allow poor families to make purchases based on their
preferences.
c.
focus on children and the disabled while neglecting the working poor.
d.
may benefit the teenage children of families who are not poor.
28. Which of the following is not correct?
a.
Critics argue that minimum-wage laws hurt the very people they are intended to help.
b.
Minimum-wage laws may increase unemployment among the groups of workers affected by the
minimum wage.
c.
If the demand for unskilled labor is relatively inelastic, the higher wage will produce more
unemployment than if the demand for unskilled labor is relatively elastic.
d.
Minimum-wage laws may benefit teenagers from middle-class families, so the policy is not a
precise way to help the poor.
29. A common criticism of welfare programs is that they
a.
create self-reliant individuals.
b.
encourage strong family values.
c.
encourage illegitimate births.
d.
have increasing benefits over time, in real terms.
