Question

1. How does the extent of income inequality in the US compare to that of other nations around the world?

2. What groups in the US population are most likely to live in poverty?

3. Describe an advantage of the Earn Income Tax Program compared with minimum wage laws to support low-income workers.

4. Describe how anti-poverty programs could discourage people from working.

5. Describe how anti-poverty programs could increase overall happiness in society.

6. Why might politicians support trade barriers that hurt more people than they help?

7. Why does government intervention in markets sometimes do more harm than good even when market failures exist? ?

8. What is an economic argument for public funding of education? Does this mean that schools should be publicly establishment/managed? What benefits would result if the government simply provided parents/students money for education and allowed parents/students to use this money to buy their education at whatever school they wished?

9. Why does a government policy to reduce the supply of illegal drugs greatly increase the price of illegal drugs? Might this policy result in more crime? Might a government policy to reduce the demand for drugs have a different effect?

10. What negative externalities do highway tolls address?

Answer 1

1. How does the extent of income inequality in the US compare to that of other nations around the world?

Rich economies like US have less income inequality compared to less developed countries like Africa and Latin America.

The Gini’s coefficient is handy in determining the levels of income inequality

Average Gini Coefficient and GDP per capita by region in 2010
	Average Gini Coefficient	Average GDP per capita
U.S. and Canada	37.07	$ 47910.68
Latin America and the Caribbean	48.82	$ 6443.76
Africa	44.26	$ 1136.30
Europe	31.30	$ 38826.47
Eastern Europe & Central Asia	30.65	$ 4317.20

Hence we can infer by the Gini’s coefficient provided for U.S. and other economies and say that while U.S. Gini’s coefficient for income equality is at 37.07 it is better off in comparison with less developed nations like Africa, Latin America and the Caribbean.

However it may also be noticed that the US income inequality is more than that in Europe at 31.30 and Eastern Europe and Central Asia.

It may also be inferred that the US income inequality status is one of the worst amongst developed economies.

2. What groups in the US population are most likely to live in poverty?

In US around 45.3 million people lived at or below the poverty line in 2013.

Population categorization in the poverty class:

Women: More women live in poverty then men. In year 2013 15.8 percent women live in poverty compared with 13.1 percent of men.

Poverty by Age:

Age	Men (%)	Women (%)
65 years and older	6.8	11.6
18 to 64 years	11.8	15.3
Under 18 years	19.8	20.0

30 percent of women who do not have husband and are head of their families live under poverty.

For men with same situation with no wives and head of their families 15.9 percent live under poverty line.

3. Describe an advantage of the Earn Income Tax Program compared with minimum wage laws to support low-income workers.

As the minimum wage increases are not an effective mechanism for reducing poverty. Most workers who gain from minimum wage increases do not live in poor (or near-poor) families, while some who do live in poor families lose their job as a result of such increases.

The earned income tax credit is an effective way to reduce poverty. It raises only the after-tax wage rates of workers in low- and moderate-income families, its tax credit increases with the number of dependent children, and evidence shows that it increases labor force participation and employment in these families.

Advantages of Earned Income Tax Program:

• State minimum wages and Earned Income tax program overlap each other but address different class of population. The EITP covers those parts of the population that are not reached by the minimum wages program.
• The increase in minimum wages and the EITP ensures that an added support is provided to the needy in order to overcome poverty.
• The arrangement allows the public and private sector to contribute thus reducing burden on both the parties and helping the needy in fulfilment of requirements.

1. Describe how anti-poverty programs could discourage people from working.

The political thrust and the industry initiatives to the anti-poverty programs can discourage people in the beneficiary class of the population to thrive to stay in the same class to take advantage of the various programs.

Once the poverty class overcomes the poverty situation then no longer will be benefits under such program be entitled to him which demotivates them to take initiatives and stay in the poverty class to take advantage of the incentives.

The population not in the poverty segment work to maintain their income levels and if the people in the poverty class are provided with excessive resources could lead to situations that develops the mindset of staying in the poverty class to ensure longevity in continuation of privileges.