Question

1.)

If the Gini coefficient for a country goes from 0.4 to 0.45, the most likely reason is:

A. Excise tax on gas was reduced

B .Property tax was reduced

C .Payroll tax was reduced

D. Marginal tax rate on lowest income cut to 5%

2.)

If your health plan automatically signs you up for a lunchtime exercise program (you are allowed to decline later), this would be an example of a:

A. Monetary incentive

B. Adverse selection

C. Imperfect information

D. Bubble

E. Nudge

3.)

Imperfect information is most likely in which market:

A. Labor market

B. Bond market

C. Stock market

D. Commodity market

Answer 1

1. B .Property tax was reduced

The Gini coefficient is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality. A higher Gini index indicates greater inequality, with high income individuals receiving much larger percentages of the total income of the population. A reduction in property tax would increase the real income of the richest as poor can not afford buying property. All the other options would increase the real income of the poor as well.

2. E. Nudge

A nudge is any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. Nudge are not mandates.

3. A. Labor market

Imperfect information arises whe the both parties involved in an economic transaction have an unequal amount of information (one party knows much more than the other). Usually, in labor markets, candidates applying for a job have more knowledge about their work capabilities than the employer. Thus they can unfairly negoatiate wages since the employer can only evaluate the performance after a certain time period has passed.