Inequality & The Lorenz Curve
This graph illustrates the cumulative percentage of income earned by the cumulative percentage of households.
What is the Lorenz Curve?
This type of tax takes a higher percentage of income from high-income earners than from low-income earners.
What is a Progressive Tax?
In a perfectly competitive labor market, the firm's labor demand curve is equivalent to this.
What is the Marginal Revenue Product (MRP) curve?
When a market fails to allocate resources efficiently, it is known by this two-word term.
What is Market Failure?
The Marginal Social Cost of a good is equal to the Marginal Private Cost plus this.
What is the Marginal External Cost?
This 45-degree line represents a scenario where every household earns the exact same income.
What is the Line of Perfect Equality?
A tax system where everyone pays the same percentage of their income, regardless of how much they earn.
What is a Proportional (or Flat) Tax?
On a factor market graph, the Marginal Revenue Product curve is downward sloping because of this
What is Diminishing Marginal Returns?
RANDOM BONUS: To earn these points, you must pretend to be a "Free Rider" by sitting in another student's chair and asking them to answer your next question for you.
Well, that was weird.
A doctor’s office is an example of a good that is excludable but non-rival (up to a point), often classified as this.
What is a Club (artificially scarce) Good?
A numerical measure of income inequality that ranges from 0 to 1
What is the Gini Coefficient?
Programs like Social Security or Unemployment Insurance that redistribute income to vulnerable groups.
What are Transfer Payments?
In a monopsony graph, the wage paid to workers is found by looking at this curve at the profit-maximizing quantity.
What is the Labor Supply Curve?
This type of regulation is often used on natural monopolies to ensure they produce where Price equals Average Total Cost.
What is Fair-Return Pricing?
If the labor market is a monopsony and the product market is a monopoly, the firm is said to have this type of power in both markets.
What is Market Power?
As the Lorenz Curve bows further away from the 45-degree line, this happens to the Gini Coefficient.
What is It Increases?
To encourage the production of a good with a positive externality, the government should provide this to consumers or producers.
What is a Per-Unit Subsidy?
Shifting the demand for the final product to the right will have this effect on the labor demand curve.
What is a Rightward Shift (Increase)?
This occurs when a government intervention intended to fix a market failure actually leads to a less efficient allocation of resources.
What is Government Failure?
This concept explains why a person might not buy insurance if they know the government will bail them out, or why they might take more risks once insured.
What is Moral Hazard?
This specific area on the Lorenz Curve graph is the numerator used to calculate the Gini Coefficient.
What is the area between the Line of Equality and the Lorenz Curve?
This type of government regulation sets a maximum level of pollution and allows firms to trade the right to emit that pollution.
What is a Cap-and-Trade System (or Marketable Emissions Permits)?
If the Marginal Product of labor increases due to better training, this happens to the MRP curve.
What is It Shifts to the Right?
This government agency in the United States is responsible for enforcing anti-trust laws to maintain market competition.
What is the Federal Trade Commission (FTC) or Department of Justice (DOJ)?
According to the "Benefits-Received Principle" of taxation, this group should pay for a specific government service.
What are the people who use or benefit from the service?