Economics (McConnell), 18th Edition

Chapter 20: Income Inequality, Poverty, and Discrimination

Key Questions

1. Assume that Al, Beth, Carol, David, and Ed receive incomes of $500, $250, $125, $75, and $50, respectively. Construct and interpret a Lorenz curve for this five person economy. What percentage of total income is received by the richest quintile and by the poorest quintile?

2. Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain.

3. How do government statisticians determine the poverty rate? How could the poverty rate fall while the number of people in poverty rises? Which group in each of the following pairs has the highest poverty rate: (a) children or people age 65 or over? (b) African-Americans or foreign-born noncitizens? (c) Asians or Hispanics?

4.The labor demand and supply data in the following table relate to a single occupation. Use them to answer the questions that follow. Base your answers on the taste-for-discrimination model.

1. Plot the labor demand and supply curves for Hispanic workers in this occupation.
2. What are the equilibrium Hispanic wage rate and quantity of Hispanic employment?
3. Suppose the white wage rate in this occupation is $16. What is the Hispanic-to-white wage ratio?
4. Suppose a particular employer has a discrimination coefficient d of $5 per hour. Will that employer hire Hispanic or white workers at the Hispanic-white wage ratio indicated in part c? Explain.
5. Suppose employers as a group become less prejudiced against Hispanics and demand 14 more units of Hispanic labor at each Hispanic wage rate in the table. What are the new equilibrium Hispanic wage rate and level of Hispanic employment? Does the Hispanic-white wage ratio rise or fall? Explain.
6. Suppose Hispanics as a group increase their labor services in that occupation, collectively offering 14 more units of labor at each Hispanic wage rate. Disregarding the changes indicated in part e, what are the new equilibrium Hispanic wage rate and level of Hispanic employment? Does the Hispanic-white wage ratio rise, or does it fall?

5.Use a demand and supply model to explain the impact of occupational segregation or "crowding" on the relative wage rates and earnings of men and women. Who gains and who loses from the elimination of occupational segregation? Is there a net gain or a net loss to society? Explain.

Chapter 20 Key Question Solutions (93.0K)