Question

Define the following terms and explain their importance to the study of economics.

a. poverty line

b. economic discrimination

c. optimal inequality

d. negative income tax

Answer 1

a. Pverty Line- Poverty line is the income level necessary to meet the basic standard of living.
Poverty line is the amount of money a person requires to meet his or her basic needs. It is defined as the money value of the goods and services necessary to give an individual basic welfare. Poverty line is different from country to country, depending on the idea of poverty

b. Economic discrimination is based on economic factors. These factors may include the availability of jobs, salaries, the prices and/or availability of goods and services, and the amount of capital investment funding available to business minorities. That may include discrimination against workers, consumers and undertakings owned by minorities. It is not the same as price discrimination, the practice by which monopolists (and to a lesser degree oligopolists and monopolistic competitors) charge different purchasers different prices based on their willingness to pay.

c. From a normative point of view, the assessment of optimal inequality depends on whether we should give any weight to (dis)satisfaction arising from social comparisons between individuals within a society. It also depends on whether the type of procedural justice appropriately embodies impartiality in the original position and whether impartiality has intrinsic value. In this regard, it can be argued that optimal inequality is an unpleasant and unacceptable result which indicates the need to modify or reject the original position.

d. The negative income tax is a way of making taxes available to those below a certain amount of income. Unlike a regular income tax, where people contribute taxes to the government, low-income people will get taxes back from the government. This structure is designed to always make people who work more than people who don't, which would ideally incentivise people to work. Although someone who makes a little money but not enough to pay income tax gains less from a negative income tax than someone who does not make any money, the person who earns more will have more overall.The goal with a negative income tax is that no one is destitute, and earning even a small salary is always preferable to earning nothing.