1. Question 18.14

   The accompanying table contains data on the U.S. economy for the years 1983 and 2013. The second column shows the poverty threshold. The third column shows the consumer price index (CPI), a measure of the overall level of prices. And the fourth column shows U.S. gross domestic product (GDP) per capita, a measure of the standard of living.

   Year	Poverty threshold	CPI (1982-1984 = 100)	GDP per capita
   1983	$5,180	99.6	$15,525
   2013	11,490	233.0	53,086
   Sources: U.S. Census Bureau; Bureau of Labor Statistics; Bureau of Economic Analysis.

   1. By what factor has the poverty threshold increased from 1983 to 2013? That is, has it doubled, tripled, and so on?

   2. By what factor has the CPI (a measure of the overall price level) increased from 1983 to 2013? That is, has it doubled, tripled, and so on?

   3. By what factor has GDP per capita (a measure of the standard of living) increased from 1983 to 2013? That is, has it doubled, tripled, and so on?

   4. What do your results tell you about how people officially classified as “poor” have done economically relative to other U.S. citizens?

2. Question 18.15

   In the city of Metropolis, there are 100 residents, each of whom lives until age 75. Residents of Metropolis have the following incomes over their lifetime: Through age 14, they earn nothing. From age 15 until age 29, they earn 200 metros (the currency of Metropolis) per year. From age 30 to age 49, they earn 400 metros. From age 50 to age 64, they earn 300 metros. Finally, at age 65 they retire and are paid a pension of 100 metros per year until they die at age 75. Each year, everyone consumes whatever their income is that year (that is, there is no saving and no borrowing). Currently, 20 residents are 10 years old, 20 residents are 20 years old, 20 residents are 40 years old, 20 residents are 60 years old, and 20 residents are 70 years old.

   1. Study the income distribution among all residents of Metropolis. Split the population into quintiles according to their income. How much income does a resident in the lowest quintile have? In the second, third, fourth, and top quintiles? What share of total income of all residents goes to the residents in each quintile? Construct a table showing the share of total income that goes to each quintile. Does this income distribution show inequality?

   2. Now look only at the 20 residents of Metropolis who are currently 40 years old, and study the income distribution among only those residents. Split those 20 residents into quintiles according to their income. How much income does a resident in the lowest quintile have? In the second, third, fourth, and top quintiles? What share of total income of all 40-year-olds goes to the residents in each quintile? Does this income distribution show inequality?

   3. What is the relevance of these examples for assessing data on the distribution of income in any country?

3. Question 18.16

   The accompanying table presents data from the U.S. Census Bureau on median and mean income of male workers for the years 1972 and 2012. The income figures are adjusted to eliminate the effect of inflation.

   Year	Median income	Mean income
   	(in 2012 dollars)
   1972	$36,547	$42,383
   2012	33,904	49,915
   Source: U.S. Census Bureau.

   1. By what percentage has median income changed over this period? By what percentage has mean income changed over this period?

   2. Between 1972 and 2012, has the income distribution become less or more unequal? Explain.

4. Question 18.17

   There are 100 households in the economy of Equalor. Initially, 99 of them have an income of $10,000 each, and one household has an income of $1,010,000.

   1. What is the median income in this economy? What is the mean income?

      Through its poverty programs, the government of Equalor now redistributes income: it takes $990,000 away from the richest household and distributes it equally among the remaining 99 households.

   2. What is the median income in this economy now? What is the mean income? Has the median income changed? Has the mean income changed? Which indicator (mean or median household income) is a better indicator of the typical Equalorian household’s income? Explain.

5. Question 18.18

   The country of Marxland has the following income tax and social insurance system. Each citizen’s income is taxed at an average tax rate of 100%. A social insurance system then provides transfers to each citizen such that each citizen’s after-tax income is exactly equal. That is, each citizen gets (through a government transfer payment) an equal share of the income tax revenue. What is the incentive for one individual citizen to work and earn income? What will the total tax revenue in Marxland be? What will be the after-tax income (including the transfer payment) for each citizen? Do you think such a tax system that creates perfect equality will work?

6. Question 18.19

   The tax system in Taxilvania includes a negative income tax. For all incomes below $10,000, individuals pay an income tax of −40% (that is, they receive a payment of 40% of their income). For any income above the $10,000 threshold, the tax rate on that additional income is 10%. For the first three scenarios below, calculate the amount of income tax to be paid and after-tax income.

   1. Lowani earns income of $8,000.

   2. Midram earns income of $40,000.

   3. Hi-Wan earns income of $100,000.

   4. Can you find a notch in this tax system? That is, can you find a situation where earning more pre-tax income actually results in less after-tax income?

7. Question 18.20

   In the city of Notchingham, each worker is paid a wage rate of $10 per hour. Notchingham administers its own unemployment benefit, which is structured as follows: If you are unemployed (that is, if you do not work at all), you get unemployment benefits (a transfer from the government) of $50 per day. As soon as you work for only one hour, the unemployment benefit is completely withdrawn. That is, there is a notch in the benefit system.

   1. How much income does an unemployed person have per day? How much daily income does an individual who works four hours per day have? How many hours do you need to work to earn just the same as if you were unemployed?

   2. Will anyone ever accept a part-time job that requires working four hours per day, rather than being unemployed?

   3. Suppose that Notchingham now changes the way in which the unemployment benefit is withdrawn. For each additional dollar an individual earns, $0.50 of the unemployment benefit is withdrawn. How much daily income does an individual who works four hours per day now have? Is there an incentive now to work four hours per day rather than being unemployed?

8. Question 18.21

   The accompanying table shows data on the total number of people in the United States and the number of all people who were uninsured, for selected years from 1999 to 2011. It also shows data on the total number of poor children in the United States—those under 18 and below the poverty threshold—and the number of poor children who were uninsured.

   Year	Total people	Uninsured people	Total poor children	Uninsured poor children
   	(millions)
   1999	276.8	38.8	12.3	3.8
   2001	282.1	39.8	11.7	3.3
   2003	288.3	43.4	12.9	3.3
   2005	293.8	44.8	12.9	3.1
   2007	299.1	45.7	13.3	3.1
   2009	304.3	50.7	15.5	3.1
   2011	308.8	48.6	16.1	3.0
   Source: U.S. Census Bureau.

   For each year, calculate the percentage of all people who were uninsured and the percentage of poor children who were uninsured. How have these percentages changed over time? What is a possible explanation for the change in the percentage of uninsured poor children?

9. Question 18.22

   The American National Election Studies conducts periodic research on the opinions of U.S. voters. The accompanying table shows the percentage of people, in selected years from 1952 to 2008, who agreed with the statement “There are important differences in what the Republicans and Democrats stand for.”

   Year	Agree with statement
   1952	50%
   1972	46
   1992	60
   2004	76
   2008	78
   Source: American National Election Studies.

   What do these data say about the degree of partisanship in U.S. politics over time?

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