chapter 14

Question 1

functional distribution of income

Answer 1

• distribution of national income among major factors of production: labour, capital, land

Question 2

size distribution of income

Answer 2

distribution of income among individuals, without regards to source of income

Question 3

lorenz curve

Answer 3

• graph showing extent of inequality of income distribution - size of area between lorenz curve and diagonal is measure of inequality

Question 4

complete inequality

Answer 4

• lorenz curve would coincide with diagonal line

Question 5

gini coefficient

Answer 5

• the ratio of the area between the line of perfect equality and the line of perfect inequality
• the higher the coefficient, the more unequal the distribution is

Question 6

trends in income distribution

Answer 6

• since 1980s, have seen an increase in income inequality

- top earners have earned more

Question 7

why should we care about rising income inequality

Answer 7

• raises a moral question about fairness

- inequality is hurting the economy

Question 8

causes of rising inequality

Answer 8

• skill based technological change
• globalization
• other: decline of labour unions, contract work, executive compensation, superstar theory, piketty argument

Question 9

what can governments do

Answer 9

• increase taxes on high income individuals

- provide services for children from different backgrounds so they have more equal access