Question 1

Which of the following best describes the difference between wealth and income in economic analysis?

Accepted Answer

Wealth is a stock of assets, while income is a flow of earnings resulting from those assets.

Question 2

In the United States, the distribution of income is described as positively skewed. What does this imply about the relationship between the mean, median, and mode?

Accepted Answer

The mean exceeds the median, and the median exceeds the mode.

Question 3

Suppose the Gini ratio for a country is $$0.60. $$What does this indicate about the country's income distribution?

Accepted Answer

Income distribution is highly unequal.

Question 4

Which of the following is NOT a major source of economic inequality according to microeconomic theory?

Accepted Answer

Random assignment of income by the government

Question 5

If the Lorenz curve for a country moves further away from the line of equality over time, what does this indicate?

Accepted Answer

Income distribution is becoming more unequal.

Question 6

Which of the following best explains why wealth is more unequally distributed than income?

Accepted Answer

Wealth excludes human capital, while income reflects the quantity of human capital.

Question 7

A household headed by a young person typically has:

Accepted Answer

Low income and low wealth.

Question 8

Which of the following government policies is NOT a form of income redistribution in the United States?

Accepted Answer

Price controls on gasoline

Question 9

Suppose technological change increases the demand for high-skilled labor but decreases the demand for low-skilled labor. What is the likely effect on wage inequality?

Accepted Answer

Wage inequality will increase.

Question 10

If the poverty rate among Black Americans is 22% and among White Americans is 11%, what does this suggest about the distribution of poverty?

Accepted Answer

Black Americans experience a higher rate of poverty than White Americans.

Question 11

Which of the following best describes the 'big tradeoff' in income redistribution?

Accepted Answer

A tradeoff between equity and efficiency.

Question 12

If a country’s Gini ratio decreases from $$0.50 to$$ $$0.40$$, what does this indicate?

Accepted Answer

Income inequality has decreased.

Question 13

Which of the following is a plausible effect of globalization on wage rates in the United States?

Accepted Answer

Decreased wage rates for low-skilled workers and increased wage rates for high-skilled workers.

Question 14

Suppose a government imposes a progressive income tax. What is the likely effect on the distribution of income?

Accepted Answer

Income distribution becomes more equal.

Question 15

Which of the following statements about poverty is correct?

Accepted Answer

Poverty is defined as having income below a certain threshold necessary for basic needs.

Question 16

If the value of marginal product for high-skilled labor increases due to technological change, what is the expected effect on the wage rate for high-skilled workers?

Accepted Answer

The wage rate for high-skilled workers will increase.

Question 17

Which of the following is a reason why income redistribution programs may be inefficient?

Accepted Answer

They use resources that could have been used for producing goods and services.

Question 18

If discrimination exists in the labor market, what is the likely effect on wage rates for equally skilled workers of different races or genders?

Accepted Answer

Wage rates will differ, with the discriminated group earning less.

Question 19

Which of the following best explains why the super-rich earn vastly more than can be explained by human capital differences alone?

Accepted Answer

They win contests or 'superstar' competitions where small differences in talent or luck lead to large differences in income.

Economic Inequality: Income and Wealth Distributions, Trends, and Government Redistribution

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