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AP Economics. Mr. Bernstein Module 78: Income Distribution and Income Inequality January 8, 2014. AP Economics Mr. Bernstein. Poverty First arbitrary definition attempted in 1960’s Rises and falls with changes in economy No trend line – poverty higher in 2009 than 1973

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Ap economics

AP Economics

Mr. Bernstein

Module 78:

Income Distribution and Income Inequality

January 8, 2014


Ap economics mr bernstein

AP EconomicsMr. Bernstein

Poverty

  • First arbitrary definition attempted in 1960’s

  • Rises and falls with changes in economy

  • No trend line – poverty higher in 2009 than 1973

  • Not spread evenly across population demographics

  • Caused by anything creating a barrier to full-time job with decent pay

    • Education or training opportunities

    • Language

    • Discrimination

    • Bad Luck

  • Consequences for Health, Learning


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AP EconomicsMr. Bernstein

Poverty


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AP EconomicsMr. Bernstein

Income Inequality: Quintile Analysis


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AP EconomicsMr. Bernstein

Income Inequality: Gini Coefficient

  • Developed by CorradoGini in 1912

  • Gini Coefficient = 0, income is distributed equally, as in column 3

  • Gini Coefficient = 1, all income goes to one person (!)


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AP EconomicsMr. Bernstein

Income Inequality: Gini Coefficient


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AP EconomicsMr. Bernstein

Income Inequality: Gini Coefficient


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AP EconomicsMr. Bernstein

Economic Insecurity and Antipoverty Programs

  • To avoid families falling into poverty, welfare state provides temporary assistance programs

  • Means-tested programs

    • Criteria determines eligibility for benefits (ie income)

    • Social Security, Unemployment Insurance

  • Progressive Taxes + Welfare System

    • Redistributes income (reduces Gini Coefficient)


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AP EconomicsMr. Bernstein

The Debate Over Income Redistribution

  • Is this a legitimate role of the government?

  • Higher taxes to fund programs create DWL

  • Means-tested programs and “The Notch”

    • Example: Single Mom earns $5,000 in benefits if income < $15,000 and zero benefits if >$15,000

    • If she currently earns $14,900, will she work overtime and earn an additional $1,000?

    • Phase-out levels reduce Notch effects

  • Are disincentives larger than consequences of poverty?

    • Economics can help calculate numbers but it often winds up being a question of values and philosophy (Normative)


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