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Chapter 20/Poverty, Inequality, and Discrimination
CHAPTER 20
POVERTY, INEQUALITY, AND DISCRIMINATION
TEST QUESTIONS
1. Define the poverty rate. Does it rise or fall during recessions?
2. Since the official poverty line was set at $3,000 in 1964, prices have risen by about a
factor of 7.5. If the poverty line was adjusted only for inflation, what would it be now?
How does that compare with the actual poverty line?
If prices have risen by a factor of seven, the official poverty line would be $24,000 since
DISCUSSION QUESTIONS
1. Discuss the “leaky bucket” analogy (“The Trade-Off between Equality and Efficiency”
section) with your classmates. What maximum amount of income would you personally
allow to leak from the bucket in transferring money from the rich to the poor? Explain
why people differ in their answers to this question.
Students will have different responses to this question. It would be interesting to collect
2. Suppose you were to design a negative income tax system for the United States. Pick a
guaranteed income level and a tax rate that seem reasonable to you. What break-even
level of income is implied by these choices? Construct a version of Table 4 for the plan
you have just devised.
3. Suppose the War on Poverty were starting anew and you were part of a presidential
commission assigned the task of defining the poor. Would you choose an absolute or a
relative concept of poverty? Why? What would be your specific definition of poverty?
4. Discuss the concept of the “optimal amount of inequality.” What are some of the
Chapter 20/Poverty, Inequality, and Discrimination
practical problems in determining how much inequality really is optimal?
One could think of output and equality as two goods that can be bought. If one knew their
relative costs and the relative utility associated with each, then one would purchase good
5. Discuss the concept of the “optimal amount of inequality.” What are some of the
practical problems in determining how much inequality really is optimal?
The distribution of income in the United States has indeed grown more unequal since the
1970s. A flat tax would be less effective in reducing inequality than would a progressive
