MODULE 78: Income Inequality and Income Distribution

Multiple-Choice Questions

Question

The poverty rate is
A.
the total number of people who earn less than $23,850 annually.
B.
the percentage of households that file for bankruptcy in a year.
C.
the percentage of the population that earns less than the poverty threshold.
D.
the percentage of the labor force that is unemployed at some point during a year.
E.
the percentage of the population that is in the lowest income quintile.

The poverty rate is
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Question

Which of the following conditions contributes to the resolution of externality problems as suggested by the Coase theorem?
A.
It is awkward for the parties involved to approach each other about the problem.
B.
There is ambiguity about the legal rights of the parties involved.
C.
There are many parties involved.
D.
Transaction costs are high.
E.
The legal rights of the parties involved are clearly defined.

Which of the following conditions contributes to the resolution of externality problems as suggested by the Coase theorem?
Question

When the production of a good creates negative externalities, which of the following leads to the socially optimal quantity of output?
A.
a price ceiling set equal to the marginal external cost
B.
a price floor set equal to the marginal private cost
C.
a Pigouvian tax set equal to the marginal external cost
D.
a Pigouvian subsidy set equal to the marginal external cost
E.
average cost pricing

When the production of a good creates negative externalities, which of the following leads to the socially optimal quantity of output?
Question

Which of the following policy changes would be the most likely to provide a gain in efficiency while achieving the same goal of reducing pollution?
A.
environmental standards instead of emissions taxes
B.
Pigouvian taxes instead of tradable emissions permits
C.
emissions taxes instead of Pigouvian taxes
D.
environmental standards instead of in-kind benefits
E.
tradable emissions permits instead of environmental standards

Which of the following policy changes would be the most likely to provide a gain in efficiency while achieving the same goal of reducing pollution?
Question

When the economy is producing the socially optimal amount of pollution, it is necessarily true that
A.
the marginal social benefit of pollution exceeds the marginal social cost.
B.
the marginal external cost of pollution equals the marginal external benefit.
C.
no pollution is being emitted.
D.
the marginal social benefit of pollution equals the marginal social cost.
E.
the marginal external cost of pollution is zero.

When the economy is producing the socially optimal amount of pollution, it is necessarily true that
Question

Market failure caused by a positive externality will involve
A.
deadweight loss.
B.
overconsumption.
C.
pollution.
D.
marginal external costs.
E.
taxation.

Market failure caused by a positive externality will involve
Question

The graph above shows the marginal social cost, supply, and marginal social benefit in an industry that generates pollution. Use this graph to answer Questions 7 and 8.

Suppose the industry is currently producing the quantity Q₂ and the price is $100. If a Pigouvian tax equal to the marginal external cost is imposed, what will happen to society’s total surplus and the deadweight loss in the industry?
Total surplusDeadweight loss
A.
decreasestay the same
B.
increasedecrease
C.
increaseincrease
D.
decreasedecrease
E.
increasestay the same

The graph above shows the marginal social cost, supply, and marginal social benefit in an industry that generates pollution. Use this graph to answer Questions 7 and 8.
Question

The marginal social cost (MSC) and the marginal external cost (MEC) at the socially optimal equilibrium would be
MSCMEC
A.
$200$200
B.
$100$0
C.
$200$100
D.
$100$200
E.
$200$0

The marginal social cost (
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Question

The graph above depicts the marginal benefit of pollution to plants A and B. Currently, each firm is emitting 600 tons of pollution. Use the graph to answer Questions 9 and 10.

An emissions tax of how much per ton would cut the total amount of pollution in half?
A.
$400
B.
$300
C.
$200
D.
$100
E.
$75

The graph above depicts the marginal benefit of pollution to plants A and B. Currently, each firm is emitting 600 tons of pollution. Use the graph to answer Questions 9 and 10.
Question

Instead of using taxes, if the government were to set environmental standards to cut the total amount of pollution in half, what would be the resulting marginal benefits to plants A and B?
Marginal benefit for plant AMarginal benefit for plant B
A.
$100$100
B.
$75$75
C.
$200$100
D.
$100$0
E.
$200$75

Instead of using taxes, if the government were to set environmental standards to cut the total amount of pollution in half, what would be the resulting marginal benefits to plants A and B?
Question

Which of the following is accurate for goods provided by markets?
A.
Artificially scarce goods are likely to be produced in inefficiently large quantities.
B.
Common resources are likely to suffer from inefficiently low consumption levels.
C.
Private goods that are popular are likely to suffer from overuse problems.
D.
Public goods are likely to suffer from inefficiently low production.
E.
Artificially scarce goods are likely to suffer from the free-rider problem.

Which of the following is accurate for goods provided by markets?
Question

Which of the following is an example of market failure?
A.
Most people can’t buy as many pairs of shoes as they would like.
B.
Most stores can’t sell as much merchandise as they would like.
C.
Fishing in many waterways brings the quantity of fish below its socially optimal level.
D.
People typically pay more for a good than they would like to pay.
E.
Stores typically must charge a price that is less than they would like to charge.

Which of the following is an example of market failure?
Question

Which of the following characteristics apply to private goods and common resources?
Private goodsCommon resources
A.
nonrival in consumptionnonexcludable
B.
rival in consumptionexcludable
C.
nonexcludablerival in consumption
D.
excludablenonrival in consumption
E.
rival in consumptionnonexcludable

Which of the following characteristics apply to private goods and common resources?
Question

Based on economic analysis, why do so many people decide not to vote?
A.
The benefits of voting are nonexcludable.
B.
The costs of voting are nonrival.
C.
The benefits of voting are rival.
D.
The costs of voting are excludable.
E.
The benefits of voting outweigh the costs.

Based on economic analysis, why do so many people decide not to vote?
Question

Which of the following statements regarding the passage of laws intended to promote competition in the marketplace is true?
A.
The Sherman Antitrust Act was intended to clarify the Clayton Act.
B.
The Clayton Antitrust Act made price discrimination illegal.
C.
The Federal Trade Commission Act made anticompetitive mergers illegal.
D.
The Sherman Antitrust Act outlawed price fixing.
E.
The Clayton Antitrust Act made it legal for two boards of directors to share a director in common.

Which of the following statements regarding the passage of laws intended to promote competition in the marketplace is true?
Question

Which of the following statements regarding a natural monopoly is accurate?
A.
The FTC will try to break up the natural monopoly because it is inefficient.
B.
Marginal cost pricing would lead to an efficient outcome and monopoly profits.
C.
The cost of producing any given quantity of the good produced by the natural monopoly would increase if multiple firms produced it.
D.
Regulators require the natural monopoly to produce the quantity that equates marginal cost and marginal benefit.
E.
The information required for average cost pricing is readily available to regulators.

Which of the following statements regarding a natural monopoly is accurate?
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Question

Which of the following welfare state programs provides in-kind benefits?
A.
Temporary Assistance for Needy Families (TANF)
B.
Medicaid
C.
the Earned Income Tax Credit
D.
Social Security
E.
Supplemental Security Income

Which of the following welfare state programs provides i
Question

Which of the following welfare state programs is not means-tested?
A.
Temporary Assistance for Needy Families (TANF)
B.
Medicaid
C.
the Earned Income Tax Credit
D.
Social Security
E.
Supplemental Security Income

Which of the following welfare state programs is not mean
Question

A Gini coefficient of 0.5 would indicate
A.
that the richest 50% of the population receives all of the income.
B.
more income inequality than a Gini coefficient of 0.4.
C.
that a country has perfect income equality.
D.
that a country has perfect income inequality.
E.
that the poorest 10% of the population receives half as much income as the richest 10% of the population.

A Gini coefficient of 0.5 would indicate
Question

Which of the following combinations correctly describes the changes since the 1970s in the poverty threshold and in the mean income as compared to the median income in the United States?
Poverty thresholdMean income compared to median income
A.
not adjusted for the standard of livingrose faster
B.
adjusted for the cost of livingdeclined
C.
adjusted for the standard of livingdeclined
D.
not adjusted for the cost of livingrose faster
E.
not adjusted for the standard of livingremained the same

Which of the following combinations correctly describes the changes since the 1970s in the poverty threshold and in the mean income as compared to the median income in the United States?