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Chapter 30 Income, Poverty, and Health Care 1021
87) Regarding income distribution and the distribution of wealth,
A) wealth is a stock concept and income a flow concept.
B) a stock is evaluated at a given moment in time; a flow is evaluated during a period of time.
C) income, a flow, can be viewed as a return on wealth.
D) All of the above are correct.
88) Wealth
A) is the same as income.
B) includes assets such as houses, stocks, and bonds.
C) does not include tangible objects.
D) is a flow and not a stock.
89) With respect to wealth in the United States, we presently find that the richest one percent of
Americans own approximately how much of the nation s wealth?
A) 10 percent B) 40 percent C) 70 percent D) 85 percent
90) Draw and explain a Lorenz curve.
91) How does the distribution of wealth differ from the distribution of income in the United States?
92) What are the major criticisms of the Lorenz curve?
93) Suppose there is a high inequality in household income between the highest and the lowest
income groups in one country. In response, the government raises the income tax for the
highest income group and provides subsidies to the lowest income group. What would happen
to the Lorenz curve as a result of the government programs? Explain.
30.2 Determinants of Income Differences
1) Age is a determinant of income because
A) with age typically come experience, education, and training that can increase income.
B) age contributes to costs as medical expenses increase.
C) older workers have accumulated more wealth.
D) older workers have accumulated less wealth.
2) Which of the following are determinants of differences in income?
A) age B) marginal productivity
C) discrimination D) all of the above
3) Which factor listed below does NOT help account for the age earning cycle?
A) productivity B) number of hours worked each week
C) effects of aging D) racial discrimination
4) The age earning cycle shows an individual typically earning
A) a constant income (adjusted for inflation) over the entire working life of the worker.
B) an income that cycles upward and downward as an individual ages.
C) an income that increases with age, peaks, and then falls as retirement approaches.
D) an income that declines until age 30 35 and then increases rapidly.
5) The age earnings profile predicts that earnings will peak at
A) the 35 40 age level. B) the 45 50 age level.
C) the 60 65 age level. D) retirement.
6) The age earning cycle
A) is an earnings profile of an individual throughout his or her lifetime.
B) shows the earnings differences by age and by gender.
C) depicts differences in the relationship between age and earnings across countries.
D) shows the average incomes of people broken down by age categories.
7) The age earning cycle usually begins
A) at relatively high income levels.
B) at relatively low income levels.
C) once a worker reaches 25 years of age.
D) only when a worker is employed full time.
8) The age earning cycle shows declining income as a person approaches retirement age because
A) worker productivity is increasing rapidly.
B) worker and hours worked diminish.
C) companies choose to promote these workers faster.
D) companies add in Social Security payments as a supplement.
9) The age earning cycle predicts that a typical person will
A)
b
e earning $50,000 in the year 2010.
B)
b
e earning the lowest income right before retirement.
C)
b
e earning the highest income right before retirement.
D)
b
e earning the highest income at about the age 45 50.
10) The learning curve suggests that an individual will
A) receive the same income throughout a career.
B) gain experience and increase productivity over time.
C)
b
e subject to frequent spells of unemployment.
D) have an income that falls over time.
11) Which of the following does NOT affect a worker s marginal productivity?
A) Education B) Training
C) Talent D) Inheritance of money
12) Which of the following is NOT considered to be a factor in the determination of a person s
marginal productivity?
A) Innate abilities such as high intelligence
B) Investment in human capital such as education
C) On the
j
ob training
D) The elasticity of supply of labor
13) Much of a person s increased productivity can be linked to
A) on the
j
ob training.
B) the prevalent marginal tax rate.
C) the price elasticity of demand for the product.
D) the income elasticity of demand for the product.
14) Marginal productivity theory would suggest that
A) all workers should be paid the same wage.
B) higher productivity will increase the market wage of an individual.
C) labor demand will have no impact on the wage paid.
D) workers cannot do anything to improve their wage prospects for the future.
15) Which of the following determinants of marginal productivity cannot be acquired by someone
who wants to increase future productivity?
A) Education B) Training C) Talent D) Experience
16) With a human capital investment (such as the investment in going to college), the most
important cost tends to be
A) foregone leisure. B)
b
ooks and equipment.
C) the opportunity cost of not working. D) taxes.
17) In general, as individuals undertake additional years of schooling,
A) their stock of human capital increases.
B) the marginal productivity of individuals as workers declines.
C) the marginal benefit to society of the extra years of education increases.
D) the marginal productivity of individuals as workers becomes negative.
18) The most common type of investment in human capital is
A) having more children per family.
B) the migration of labor in search of better jobs.
C) expanded years of schooling.
D) improved health care and maintenance.
19) What is typically the main cost of pursuing a college education?
A) Tuition B) Room and board
C) Books and supplies D) Income forgone by not working
20) In the absence of discrimination, as human capital investments increase, wages will generally
A) decrease. B) increase.
C) not change. D) increase or decrease.
21) Investment in human capital
A) is quite different from and has a much lower return than investment in physical capital.
B) is just like investment in physical capital and has a return similar to that earned from other
investments.
C) is just like investment in physical capital but has a much greater return than do other
investments.
D) is not comparable to other investments in any way since human capital is embodied in the
person.
22) In the United States, inheritance accounts for roughly ________ of income inequality.
A) 50 percent B) 30 percent C) 20 percent D) 10 percent
23) The following are all determinants of income differences examined in the text EXCEPT
A) age. B) marginal productivity.
C) inheritance. D) height.
24) Most individual s income peaks when they are about
A) 30. B) 40. C) 50. D) 60.
25) The age earnings cycle is
A) the distribution of money income by age.
B) the distribution of wealth by age.
C) the relationship between earnings while working and retirement benefits for an
individual.
D) the regular earnings profile of an individual throughout his or her lifetime.
26) The regular earnings profile of an individual throughout his or her lifetime is
A) the Lorenz curve. B) the age earnings cycle.
C) wealth. D) income in kind.
27) Which of the following statements are correct about the age earnings cycle?
A) Earnings generally increase up till age 30 and then steadily decrease.
B) Earnings increase throughout a prison s lifetime until they reach retirement.
C) Earnings increase with age because workers become more productive as they age until
around 50 years. Around 50 the effects of aging outweighs the further increases in
productivity.
D) Since every person is different we can reach no general conclusions about the
age earnings cycle.
28) The earnings of most people
A) increase steadily until retirement.
B) increase with age until around age 50 due to increased experience, training, and hours
worked.
C) increase with age until around age 40 due to increased experience and hours worked.
D) increase with age until around age 60 due to increased experience, training, and hours
worked, then level off as hours worked levels off.
29) Suppose all people have the same age earnings profile and the percent of the population in each
age category is the same. The distribution of income at any point in time will be
A) equal because all have the same profile.
B) equal because incomes and wealth levels must then be the same.
C) unequal because other sources of income will differ.
D) unequal because incomes differ by age.
30) One reason earnings tend to fall before retirement age is that
A) the experience of people is no longer valuable after they are 50 or 55.
B) people tend to reduce the number of hours they work after age 50.
C) people are retiring earlier.
D) firms discriminate against older workers.
31) Refer to the above figure. Which of the graphs are consistent with the age earnings profile?
A) Panel A B) Panel B C) Panel C D) Panel D
32) In a competitive economy, workers will be paid according to their
A) status. B) age.
C) marginal productivity. D) need.
33) Which of the following is not a determinant of an individual s marginal product?
A) talent B) money income
C) experience D) educational level
34) Which of the following sources of productivity is the most difficult to acquire?
A) education B) experience C) talent D) training
35) The return on human capital
A) tends to be much greater than the return on physical capital.
B) tends to be much lower than the return on physical capital.
C) is similar to the return on physical capital.
D) cannot be related to the return on physical capital since human capital and physical capital
are so different.
36) The main cost of a college education is
A) tuition if one goes to a private college and room and board if one goes to a public college.
B) dependent upon whether one s parents pay for the college or not.
C) the lack of practical experience from spending time in college.
D) the opportunity cost of not working.
37) When measuring the benefits from investing in human capital
A) the only benefits come from the increase in salary because of going to school.
B) in addition to the monetary benefits, the benefit from expanding horizons should be
included.
C) we must include the costs of tuition and books but not the money made from part time
jobs.
D) we must include the foregone earnings in the benefit calculation.
38) Inheritance is responsible for about ________ percent of the income inequality in the United
States.
A) 10 B) 25 C) 40 D) 60
39) Economic discrimination exists when
A) there is an unequal distribution of income in a country.
B)
b
oth income and wealth are unequally distributed in a country.
C) there is unequal access to education.
D) workers with the same marginal revenue products are paid different wages.
40) Economic discrimination against minorities exists when
A) minorities have less education and training than whites.
B) minorities are paid less than whites on average.
C) minorities are paid less than whites with the same education, experience, and training.
D) minorities are in different occupations than whites.
41) Unequal pay that is caused by economic discrimination will be due to
A) a noneconomic factor.
B) differences in the marginal revenue product.
C) a monopolistic labor market.
D) difference in human capital.
42) Which of the following is a reason for economic discrimination to occur?
A) differences in access to education
B) differences in gender
C) differences in the quality of education
D)
b
arriers to entry in higher paying occupations
43) The age earnings profile for most people indicates
A) earnings rise continually until a person retires.
B) earnings initially decline and then rise continually until retirement.
C) that when you adjust for inflation, earnings are constant throughout the entire workplace
experience.
D) earnings rise until the age of about 50 and then begin to fall until retirement.
44) Which of the following is NOT considered a determinant of income differences?
A) productivity B) age
C) discrimination D) equity or fairness
45) Which of the following does NOT contribute to the marginal productivity of workers?
A) discrimination B) talent C) experience D) education
46) Inheritance accounts for about
A) 5 percent of income inequality. B) 10 percent of income inequality.
C) 15 percent of income inequality. D) 30 percent of income inequality.
47) Which of the following would NOT be considered a determinant of marginal productivity?
A) talent B) gender C) experience D) training
48) Determinants of income differences include all of the following EXCEPT
A) age. B) marginal productivity.
C) moral hazard. D) discrimination.
49) Typically, the major cost of a college education is
A) tuition. B)
b
ooks.
C) foregone income. D) housing.
50) Determinants of the marginal productivity of labor include all of the following EXCEPT
A) talent. B) education. C) experience. D) location.
51) Going to college to get more knowledge and skills is considered to be an increase in
A) physical capital. B) consumption.
C) human capital. D) net exports.
52) All of the following lead to a difference in income EXCEPT
A) sales tax. B) discrimination.
C) the age earnings cycle. D) marginal productivity.
53) On average the productivity of an individual usually peaks when the individual is about
A) 20. B) 30. C) 50. D) 60.
54) If a goal of a nation s residents is to increase marginal productivity, they should increase
A) expenditures on education. B) the inheritance tax.
C) exports. D) the marginal propensity to consume.
55) All of the following contribute to income inequality EXCEPT
A) differences in education and training. B) differences in job tastes.
C) differences in talent. D) government transfer programs.
56) The typical age earnings cycle shows that
A) there is a positive relationship between age and earnings that eventually turns into a
negative relationship.
B) there is a constant positive relationship between age and earnings.
C) there is a constant negative relationship between age and earnings.
D) there is no relationship between age and earnings.
57) The age earnings cycle is an earnings profile of an individual throughout the person s lifetime.
The profile shows that
A) earnings usually peak at age 25 and then decline.
B) earnings gradually rise until they peak around age 50.
C) earnings and age have no particular correlation.
D) younger workers have the most productivity.
58) The opportunity cost of going to college for a student receiving a scholarship
A) is the income that she would have earned if she did not go to college.
B) is the risk of dropping out.
C) is the food and living expenses that she has to purchase while in college.
D) is zero because she does not have to pay tuition.
59) Why doesn t the age earning cycle continuously increase until retirement age?
60) What is the age earnings cycle? What is the typical age earnings profile for a U.S. resident?
61) Earnings usually reflect a person s productivity. What are factors that cause differences in
productivity across people so that earnings differ too?
62) The typical age earning cycle provides evidence of economic discrimination by age. Do you
agree or disagree? Why?
30.3 Theories of Desired Income Distribution
1) The productivity standard for the distribution of income can be thought of as
A) rewarding people according to their ability to produce useful goods.
B)
b
enefiting only the least productive worker.
C) proving that egalitarians are correct.
D) rewarding only the wealthy.
2) One productivity standard for income distribution stated in the text is
A) income distribution should be based on contribution to society s total output.
B) tax payments are higher for higher income people.
C) poor people pay too much in taxes.
D) the poor should contribute more to society.
3) The contributive standard (merit standard) for distributing income implies that
A) income should be distributed equally.
B) income should be distributed according to need.
C) income should be distributed according to the marginal productivity of workers.
D) a transfer should be contributed to an individual above his or her contribution to net
output.
4) The contributive standard of income distribution is met by
A) setting wages according to marginal productivity.
B) having a highly progressive income tax.
C) having the government determine all wages.
D) using local committees to determine the needs of families in the area.
5) The egalitarian principle of income refers to
A) each person being paid differently.
B) each person receiving the same income.
C) each person receiving tax breaks.
D) each person working the same number of hours.
6) To each exactly the same refers to
A) the productivity standard. B) the free market doctrine.
C) the egalitarian principle. D) the Lorenz curve.
7) A major problem with using the egalitarian principle to distribute income is that
A) it would eliminate the incentives that rewards provide in an economic system.
B) it is difficult to know when an equal distribution of income has been achieved.
C) it would not be fair to the wealthy.
D) there exist no mechanisms to carry out such a scheme.
8) If income were distributed according to the egalitarian principle of to each exactly the same,
then one problem would be that
A) there would be little or no incentive for individuals to take risky, hazardous, or unpleasant
jobs.
B) individuals would have an excess desire to invest in their own human capital.
C) too many individuals would want to take risky jobs.
D) productivity levels would probably become too high.
9) The productivity standard says
A) that everyone should have exactly the same income.
B) that the age earnings cycle should determine income.
C) that people should be compensated on the basis of what they produce.
D) that people should be compensated on the basis of their need.
10) The egalitarian principle refers to:
A) To each according to her need. B) To each exactly the same.
C) To each according to her productivity. D) To each according to his ability.
11) The merit standard refers to:
A) To each according to her need. B) To each exactly the same.
C) To each according to her productivity. D) To each according to his ability.
12) The egalitarian principle says
A) that everyone should have exactly the same income.
B) that the age earnings cycle should determine income.
C) that people should be compensated on the basis of what they produce.
D) that people should be compensated on the basis of their need.
13) The belief that everyone should have exactly the same amount of income is
A) merit standard. B) comparable worth doctrine.
C) egalitarian principle. D) Lorenz principle.
14) If we were to pay everyone exactly the same income
A) there would be a large amount of economic growth.
B) there would be no incentive to invest in human capital.
C) more people would seek an education.
D) productivity would increase.
15) Which of the following is considered a contributive standard for the distribution of income?
A) rewarding workers according to their productivity
B) rewarding workers according to their needs
C) rewarding workers according to the number of their dependents
D) all of the above
16) If an employer pays employees according to the volume of business revenue they individually
generate, then the employer is applying the
A) productivity standard. B) merit standard.
C) contributive standard. D) all of the above
17) Merit is judged by one s ability to produce
A) what is considered useful by society. B) what is considered valuable by society.
C) what is considered beneficial to society. D) all of the above
18) We measure a person s productive contribution in a market system by
A) the marginal factor cost theory of the firm.
B) the profit maximization theory of the firm.
C) the marginal revenue product theory of wage determination.
D) the egalitarian theory of wage determination.
19) Which of the distributive standards does NOT involve a value judgment?
A) Productivity standard
B) Egalitarian standard
C) Merit standard
D) All of the standards involve value judgments.
20) Which of the following is NOT a normative standard for income distribution?
A) the productivity standard
B) the egalitarian principle
C) rewarding people according to merit
D) All of the above are normative standards.
21) If you believe that a worker should be paid on the basis of what he or she produced, you believe
in
A) the egalitarian principle. B) the productivity standard.
C) the benefits standard. D) the comparative worth principle.
22) If you believe that all workers should be paid the same, you believe in the
A) egalitarian principle. B) productivity standard.
C)
b
enefits standard. D) comparative worth principle.
