Chapter 17: Income, Poverty and Health Care
1. As an application of the Lorenz curve, it might be worth asking students whether an increase in the
proportion of the population who were retired, young, or divorced would affect the Gini coefficient in a
predictable way (it would, by increasing the number of households with low measured income).
2. A good in-class test of whether students understand life cycle effects in evaluating income
redistribution is to ask them why efforts to redistribute from those with current high incomes to those with
3. Note to students that differentials in average wages for different groups are substantially biased by
4. There are several interesting classroom discussion questions that can be based on this material. For
instance: How can a decrease in the top tax bracket affect secondary workers more than primary
workers? Who gets the biggest tax cut? What would this do to the incentives for high income men to
5. Note that if noncash benefits (which are not counted in official income distribution measures) increase
6. Note to students that given the progressive nature of the income tax, expanding generally available
programs from income tax revenues (e.g., Medicare) can substantially redistribute income from higher
income taxpayers to lower income recipients.
7. To illustrate some of the incentive problems that income redistribution can cause over time, ask
students what would happen if highly progressive taxation not just lowered the take home pay of current
8. An interesting classroom discussion starter question about income redistribution is: Is it fair to help the
poor through government, funded by taxation? This can trigger a discussion of the different meanings
9. One interesting extension that can be done here is to point out that the more the government already
10. As a classroom discussion starter about whether discrimination reflects economic factors, it can be
useful to ask what kind of wages an employer who had to invest $40,000 in training a worker would offer
11. Note that if information is costly to obtain, not only might group averages be used as imperfect but
low cost indicators, but only by members of a group being better than the prior group average can the
group average be raised.
12. An interesting discussion about discrimination can be started based on a minimum wage illustration
from South Africa years ago. White South African labor unions pushed through legislation mandating
13. Note that self-employment is often a way around discrimination. This can lead to a lively class
discussion of why the government frequently enforces barriers to entry to self employment (such as
14. The Alchian and Kessel analysis of why regulated firms may discriminate more than other firms—
15. A sometimes useful analogy to the difference between absolute and relative measures of poverty is
16. A connection between measurement issues and poverty issues can be drawn by discussing how
over-indexing the poverty line by tying it to changes in the consumer price index has affected the number
of people officially in poverty.
17. A welfare reform extension you might find useful is to ask students why it gets progressively harder to
18. A current policy that you may want to discuss in class because it acts as a wage subsidy (at least over
the range of income where earnings are subsidized) is the earned income tax credit.
19. You might want to point out that if there are large life-cycle effects, apparent redistribution from
whose responsibility is it to provide that right, if the recipients need not pay for it, and what happens to
21. As a classroom example, it might be worth asking whether, if the increasing share of GDP going to
health care was solely due to an aging population and rising real incomes, it would constitute a problem
22. It is worth reminding students that while there are few good substitutes for many kinds of major and
23. A good extension of the insurance discussion is to ask students whether health insurance could lead
ople demand
(at the far lower price they must pay for it) higher quality care, investing in, say, a diagnostic test machine
Since there is no real uncertainty about whether you will eat lunch, such a policy would provide no real
25. It is worth reminding students that the effects of price ceilings in the health care market are different
in detail, but the same in essence, as any price ceiling, and referring them back to the earlier section in
the text that dealt with those effects.
26. In discussing the market for human organs, it might be worth asking whether anyone else in the
27. Emphasize that the basic intent of Health Savings Accounts (HSAs) is to allow for coverage for what
makes the most sense under principles of insurance (very costly, low probability catastrophic events with