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Chapter 20

Income Inequality and Poverty

Educators

AV
AM
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Problem 1

Table 2 shows that income inequality in the United States has increased since 1970. Some factors contributing to this increase were discussed in Chapter 19. What are they?

Jingchi Y.
Numerade Educator

Problem 2

Table 3 shows that the percentage of children in families with income below the poverty line far exceeds
the percentage of the elderly in such families. How might the allocation of government money across
different social programs have contributed to this phenomenon?

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Problem 3

This chapter discusses the importance of economic mobility.
a. What policies might the government pursue to increase economic mobility $within$ a generation?
b. What policies might the government pursue to increase economic mobility $across$ generations?
c. Do you think we should reduce spending on current welfare programs to increase spending on
programs that enhance economic mobility? What are some of the advantages and disadvantages of
doing so?

Oluwadamilola A.
Numerade Educator

Problem 4

Consider two communities. In one community, ten families have incomes of \$100,000 each and ten
families have incomes of \$20,000 each. In the other community, ten families have incomes of \$200,000 each and ten families have incomes of \$22,000 each.
a. In which community is the distribution of income more unequal? In which community is the problem of poverty likely to be worse?
b. Which distribution of income would Rawls prefer? Explain.
c. Which distribution of income do you prefer? Explain.
d. Why might someone have the opposite preference?

Heather D.
Numerade Educator

Problem 5

This chapter uses the analogy of a "leaky bucket" to explain one constraint on the redistribution of income.
a. What elements of the U.S. system for redistributing income create the leaks in the bucket? Be specific.
b. Do you think that Republicans or Democrats generally believe that the bucket used for redistributing income is leakier? How does that belief affect their views about the amount of income redistribution
that the government should undertake?

KM
Kanishk M.
Numerade Educator

Problem 6

Suppose there are two possible income distributions in a society of ten people. In the first distribution, nine people have incomes of \$30,000 and one person has an income of $10,000. In the second distribution, all ten people have incomes of \$25,000.
a. If the society had the first income distribution, what would be the utilitarian argument for redistributing income?
b. Which income distribution would Rawls consider more equitable? Explain.
c. Which income distribution would Nozick consider more equitable? Explain.

Natalie B.
Numerade Educator

Problem 7

The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Let's say the program costs \$10,000 per recipient family.
a. If the government gave each recipient family a \$10,000 check instead of enrolling them in the Medicaid program, do you think that most of these families would spend that money to purchase health insurance? Why? (Recall that the poverty level for a family of four is about \$23,000.)
b. How does your answer to part (a) affect your view about whether we should determine the poverty rate by valuing in-kind transfers at the price the government pays for them? Explain.
c. How does your answer to part (a) affect your view about whether we should provide assistance to the poor in the form of cash transfers or in-kind transfers? Explain.

Heather D.
Numerade Educator

Problem 8

Consider two of the income security programs in the United States: Temporary Assistance for Needy Families (TANF) and the Earned Income Tax Credit (EITC).
a. When a woman with children and very low income earns an extra dollar, she receives less in TANF benefits. What do you think is the effect of this feature of TANF on the labor supply of low-income women? Explain.
b. The EITC provides greater benefits as low-income workers earn more income (up to a point). What do you think is the effect of this program on the labor supply of low-income individuals? Explain.
c. What are the disadvantages of eliminating TANF and allocating the savings to the EITC?

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