1
Q
5.2 Institutions and power
What are institutions?
A
A set of laws and informal rules that regulate the workings of social interaction amongst people.
- Also associated with defining the ‘rules of the game’
2
Q
5.2 Institutions and power
What are the two things that institutions can provide?
A
Incentives and constraints
3
Q
5.2 Institutions and power
In the ultimatum game what do the rules of the game affect?
A
- Division of the total
- How the game is played
- The pay off received by each individual involved
4
Q
5.2 Institutions and power
What does the institution specify in the ultimatum game?
A
- Who gets to be the prosperer
- The role of the prosperer and responder
- Who gets what allocation
5
Q
5.2 Institutions and power
Define power
A
The ability to attain ones wants in opposition to the intention of others.
6
Q
5.2 Institutions and power
What are the two forms of power in voluntary economic action?
A
- Structural Power
- Bargaining power
7
Q
5.2 Institutions and power
What is structural power?
A
Structural power is the bargaining strength a person has based on how good their next best alternative is if they walk away from the discussed deal.
- The structural power held by one person is limited by the structural power of the other person involved
- Getting any amount more than the other persons next best alternative is not feasible, as the other person would then just choose to not engage in such a deal.
8
Q
5.2 Institutions and power
What is bargaining power?
A
The structural power of two parties to a voluntary interaction determines both the most and the least that a person can get in order for the interaction to take place. What each person gets between these two extremes is determined by their bargaining power. A person exercising bargaining power may:
set the terms of an exchange, for example by making a take-it-or-leave-it offer (as in the ultimatum game)
impose or threaten to impose heavy costs unless the other party acts in a way that benefits the person with power.
9
Q
5.2 Institutions and power
Who has more bargaining power in the ultimatum game?
A
The proposer; they have the power to place a take it or leave it offer, which offsets (in their advantage) the proportion of the pie they can take.
10
Q
5.2 Institutions and power
What limits the Proposers bargaining power?
A
The Responders power to refuse the offer.
11
Q
5.2 Institutions and power
In a game with two Responders, what happens to the Responders bargaining power, and the Proposer’s?
A
The Responders power to refuse is lower, they have less bargaining power. This means the Proposer has more bargaining power.
12
Q
5.2 Institutions and power
In a situation where the proposer just divides the pie as they see fit and the responder must take it what happens to each individuals bargaining power?
A
The proposer has all the bargaining power and the responder has none.
13
Q
5.2 Institutions and power
What type of ultimate game with a Proposer with all bargaining power, and Responder with no bargaining power referred to?
A
A dictator game
14
Q
5.2 Institutions and power
If the rules of the ultimatum game are changed where the Responder’s next best alternative offers a different source equal to 40% of the pie’s proportion, what power does this affect and how?
A
The Responders next best alternative increases to something worth 40% of the pie, increasing their structural power and decreasing the Proposers. This results in the proposer not offering something below 40%.
15
Q
5.2 Institutions and power
How does assignment of Proposer and Responder in the ultimatum game model defer to the real world?
A
The assignment of roles is random, unlike the real world.
16
Q
5.2 Institutions and power
Describe structural and bargaining powers in the labour market as well as how Proposer and Responder roles translate?
A
Proposer= business owners who have substantial bargaining power to set terms of wage and employment.
Responder= those seeking employment who have structural power given that loss of employment leads to income support from the government. This structural power leads to a minimum wage by business owners.
17
Q
5.2 Institutions and power
Do firms with more or less competitors have more bargaining power?
A
Firms with less competitors have more bargaining power. When there are more competitors, consumers have more structural power, leading to firms having to choose lower prices.
18
Q
5.2 Institutions and power
In terms of power, what do trade unions do?
A
Increase employees bargaining power.
19
Q
5.3 Evaluating institutions and outcomes: Fairness
What must be used to evaluate economic outcomes?
A
- Pareto efficiency
- Fairness
20
Q
5.3 Evaluating institutions and outcomes: Fairness
Why is it difficult to determine fairness?
A
Different standards of justice and fairness are applied based on the circumstance of each individual involved.
21
Q
5.3 Evaluating institutions and outcomes: Fairness
What are the two ways in which allocations can become unfair?
A
Substantive judgement of fairness: how unequal allocations are (e.g. income, subjective wellbeing)
Procedural judgement of fairness: how the allocations came about
22
Q
5.3 Evaluating institutions and outcomes: Fairness
To make substantiative judgements about fairness what is required?
A
Just information about the allocations
23
Q
5.3 Evaluating institutions and outcomes: Fairness
What is required to make procedural judgements about fairness?
A
Rules of the game and context as to why this was the chosen allocation.
24
Q
5.3 Evaluating institutions and outcomes: Fairness
What are alternative measures to quantify fairness?
A
- Happiness
- Freedom
- Wealth/Income
25
# 5.3 Evaluating institutions and outcomes: Fairness
What are the three ways to evaluate procedural judgements of fairness?
1. Legitamacy of voluntary exchange: Were actions taken freely chosen?
2. Equal oppurtunity: Did individuals have the same oppurtunity to obtain a large share?
3. Deservigness: Did one individual uphold social norms (e.g. work harder) than the other?
26
# 5.3 Evaluating institutions and outcomes: Fairness
Why can the ultimatum game be judged using substaintial fairness (experimentally)?
* Proposers are chosen randomly.
* The game is played anonymously.
* Discrimination is not possible.
* All actions are voluntary. The Responder can refuse to accept the offer, and the Proposer is typically free to propose any amount.
27
# 5.3 Evaluating institutions and outcomes: Fairness
What are the three steps taken to clarify arguments about fairness?
1. Justice is impartial so fairness applies to everyone
2. Feigning ignorance to any idea of privelege u may have
3. When being ignorant to ur own poisition and acknowledge justice as impartial then a decision can be taken
28
# 5.4 Setting up a model: Technology and preferences
What is a preference?
A description of the relative values that a person places on each possible outcome.
29
# 5.4 Setting up a model: Technology and preferences
What is technology?
A set of materials and other inputs (people working and machinery) to produce an output.
30
# 5.4 Setting up a model: Technology and preferences
In a scenario where angela is employed by bruno to work and produce grain on Brunos land what does each individual want?
Angela wants the best feasible combinstion of grain and free time given her indifference curves and preferences.
Bruno wants as much as grain as possible as he does no work.
31
# 5.4 Setting up a model: Technology and preferences
What is a production function?
A graphical representation of input to output. Shows the relationship of Angelas labour to Grain output.
32
# 5.4 Setting up a model: Technology and preferences
What is assumed in a model with Angela (worker making grain) and Bruno (owns the land that the grain is made on)?
Bruno is entirely self interested
33
# 5.4 Setting up a model: Technology and preferences
What is marginal utility?
The additional utility resulting from a one-unit increase in the amount of a good. When the marginal utility of free time is higher the marginal utility of grain (consumption) is lower.
34
# 5.4 Setting up a model: Technology and preferences
What does this signify about the dependence of MRS on grain and free time?
MRS is not dependent on the amount of grain she has and does not change if she gains more or less grain but is only dependent on level of free time.
35
# 5.4 Setting up a model: Technology and preferences
What are Brunos preferences given he does not care about Angela's free time and only care about the amount of grain she produces?
His indifference curves are horizontal.
36
# 5.4 Setting up a model: Technology and preferences
Describe why Angelas production function is a concave shape when plotting Bushels of grain produced against working hours?
The average product of an hour’s work diminishes as the number of hours increases. As before, this happens because the amount of land available is fixed: working twice as many hours on the same amount of land would not double its output.
37
# 5.4 Setting up a model: Technology and preferences
If we produce a graph of the number of hours of free time against the bushels of grain produced what is this called and what would this look like? How does Angelas production function vary with the one in unit 3?
This is the feasible frontier and has opposite shape to the production function. In unit 3, MRT is the same at every point on the frontier. For Angela, the MRT changes: the more free time she takes, the greater is the MRT—when she already has a lot of free time the opportunity cost of taking another hour is higher: how much grain she has to give up.
38
# 5.5 Institutions, and the case of the independent farmer
What are the ways in which the rules of the game differ based on institutional setting?
1. How work hours are determined
2. The alternatives of the employee
3. The role of the government
39
# 5.5 Institutions, and the case of the independent farmer
What are property rights?
Legal protection of ownership, including the right to exclude others and to benefit from or sell the thing owned. Property rights may cover broadly-defined goods such as clean water, safety, or education, if these are protected by the legal system.
40
# 5.5 Institutions, and the case of the independent farmer
What is the basis of the baseline case?
Angela (the worker) owns the land that she works on. This is not a social interaction so income distribution does not need to be considered.
41
# 5.5 Institutions, and the case of the independent farmer
What are land tenure institutions?
Rules that decide who can use land, who owns it, and whether it can be sold or shared.
42
# 5.5 Institutions, and the case of the independent farmer
What are the types of land institutions?
Private ownership:
* One person or household owns the land
* They can stop others from using it
* They can sell or give it away
Communal tenure:
* Land is shared by a community
* Members have specific rights (e.g. grazing animals on common land)
Open access:
* No one owns the land
* No one can be excluded (e.g. oceans, some forests)
State ownership:
* The government owns the land
* A public authority controls its use
43
# 5.5 Institutions, and the case of the independent farmer
If Angela has private ownership of her land what decision does she face?
She wants to find a point in the feasible set of combinations of free time and consumption that gives her the highest possible utility.
44
# 5.5 Institutions, and the case of the independent farmer
Which point on this graph is ideal?
MRS=MRT So IC*
Point A is the preferred combination as free time (her MRS) is equal the trade-off she is constrained to make by her technology (the MRT).
45
# 5.5 Institutions, and the case of the independent farmer
Describe when MRT>MRS and MRS>MRT
MRT>MRS: Feasible frontier is steeper-she could transform an hour of free time into more grain than the least amount she would be willing to accept for the loss of free time.
MRS>MRT: Feasible frontier is flatter- the hour of free time that could be made into more grain is more than she would be willing to lose free time for.
46
# 5.6 Case 1: Forced labour
Describe forced labour
The exploitation of a worker where their other option than working for the land owner risks harm. In this situation the government reinforces property rights but allows explotation of the worker.
47
# 5.6 Case 1: Forced labour
Why is the feasible frontier the same as the baseline case?
Even in forced labour, the technology remains the same meaning that the feasible frontier doesnt change. The only difference is that the land owner decides how much work the worker will do; they own the grain produced, and decides how much of it to give to the worker.
48
# 5.6 Case 1: Forced labour
Describe the employers share, Angelas share, Angelas working hours and free time in this graph
At point D, 46 bushels of grain she produces, Bruno keeps 31 bushels and gives 15 to her and she has 16 hours of free time. Point A is also an allocation, in which he gives her all the grain, but this is unlikely in forced labour.
49
# 5.6 Case 1: Forced labour
What is a reservation option?
When someone makes a choice amongst the available options in a particular transaction, the reservation option is their next best alternative option.
50
# 5.6 Case 1: Forced labour
What is a reservation indifference curve?
A curve that indicates combinations of goods that are as highly valued as one’s reservation option.
51
# 5.6 Case 1: Forced labour
What does an employer need to ensure in forced labour?
To prevent a worker from dying of starvation or overwork (and therefore no longer being available for exploitation), and deter her from resisting or revolting, they need to ensure that the worker receives at least reservation utility
52
# 5.6 Case 1: Forced labour
Which region does the employer need to meet in a forced labour case?
The blue region. This is referred to as the employers feasible set.
53
# 5.6 Case 1: Forced labour
Depict the information on this graph to a graph showing Brunos bushels of grain compared to Angelas hours of free time
If choosing any allocation on IC1, however many hours he makes Angela work, Bruno gets as much as possible of the grain produced. Therefore this gives Angela only however much is required to reach her reservation utility.
54
# 5.6 Case 1: Forced labour
Why does Bruno choose a point where MRS=MRT?
MRS>MRT: To the left of 16 hours of free time (where Angela works more), the slope of Angela’s indifference curves is steeper than the slope of the feasible frontier. Bruno could benefit from giving Angela a bit more free time: her output of grain would fall, but the grain she would require to be no worse off (that is, to remain on IC1) would fall by even more. So Bruno would get more for himself.
MRS < MRT: To the right of 16 hours of free time, The feasible frontier is steeper, and the indifference curves are flatter. Bruno can benefit from giving Angela less free time. The extra grain she would produce is more than the additional grain she would require to remain on IC1.
55
# 5.6 Case 1: Forced labour
What is economic rent?
Economic rent is the difference between the net benefit (monetary or otherwise) that an individual receives from a chosen action, and the net benefit from the next best alternative (or reservation option).
56
# 5.6 Case 1: Forced labour
In forced labour what is a workers rent?
They receive no economic rent as the outcome is on their reservation indifference curve. Whereas the employer receives economic rent if any grain is produced at all.
57
# 5.6 Case 1: Forced labour
How is a case of forced labour Pareto efficient despite being unfair? (In this case how is Allocation D pareto efficient)
If it changed to a point below the reservation indifference curve, the workers utility would be even lower and the employer would get nothing. Both would be worse off. Any change from allocation D would make at least one of them worse off.
58
# 5.7 Case 2: A take-it-or-leave-it contract
Describe the differnce between forced labour and a take it or leave it contract
While forced labour their are no provisions to protect an employee, in take it or leave it contracts the government protects a worker from being forced to work, as well as property rights as a landowner. Furthermore, the legal system will enforce contracts between worker and employee. Workers rights improve alternative options providing them with more structural power.
59
# 5.7 Case 2: A take-it-or-leave-it contract
What are the two types of contracts an employer may offer a worker?
1. Tenancy
2. Employment
Both can be accepted or rejected
60
# 5.7 Case 2: A take-it-or-leave-it contract
What is required to make a contract viable?
1. Both parties must agree voluntarily
2. Both parties must provide something
61
# 5.7 Case 2: A take-it-or-leave-it contract
In a take it or leave it offer what is the reservation option
Utility received by accepting an alternative work contract
62
# 5.7 Case 2: A take-it-or-leave-it contract
Why is angela's indifference curve higher?
The feasible frontier is the same as in Case 1, but Angela’s reservation indifference curve is higher: it is IC2 rather than IC1 due to option of alternative work. Bruno’s feasible set of allocations is smaller.
63
# 5.7 Case 2: A take-it-or-leave-it contract
When does Bruno (employer) do best?
At point L where MRS=MRT. Just as before (in Case 1), Bruno gets the most grain where the slope of Angela’s reservation indifference curve (her MRS) is the same as the slope of the feasible frontier. He offers a contract specifying eight hours of work, and a wage of 23 bushels.
64
# 5.7 Case 2: A take-it-or-leave-it contract
Describe gains from exchange
The benefits that each party gains from a transaction compared to how they would have fared without the transaction.
65
# 5.7 Case 2: A take-it-or-leave-it contract
Describe joint surplus
The sum of the economic rents of all involved in an economic interaction. Employers reservation option is zero bushels of grain, and the amount of grain worker can produce by farming his land is greater than the amount that would give her reservation utility.
66
67
# 5.7 Case 2: A take-it-or-leave-it contract
If a joint surplus is 23 and the employer takes 11.5 bushels for himself, and giving a worker a wage of 34.5 what is their rent and reservation utility?
23 for their reservation utility and a rent of 11.5
68
# 5.7 Case 2: A take-it-or-leave-it contract
At point L what is a workers rent and what is this point equal to?
L=reservation utiltiy and the worker has no rent
69
# 5.7 Case 2: A take-it-or-leave-it contract
How does a take-it or leave it offer aid the employer?
Provides them with all the bargaining power.
70
# 5.7 Case 2: A take-it-or-leave-it contract
What does a tenancy contract entail?
The worker owes an employer a rent and can use the land as they see fit.
71
# 5.7 Case 2: A take-it-or-leave-it contract
What does this graph describe?
The feasible frontier is lowered as a result of rent. The highest indifference curve she can reach is IC2, which just touches her frontier for grain consumption at point L. If she has to pay a land rent of 23 bushels, the best is to work for eight hours, and consume 23 bushels of grain (point L). This gives her the reservation level of utility, so she will be willing to accept Bruno’s offer, other points with less hours work offer her lower utility
72
# 5.7 Case 2: A take-it-or-leave-it contract
What are the benefits and losses of a worker with a take-it or leave-it contract?
Benefit: Working hours are same but with a higher income due to more structural power
Loss: no economic rent due to no bargaining power
73
# 5.7 Case 2: A take-it-or-leave-it contract
Is point L pareto efficient?
At allocation L, there is no change that could make either Bruno or Angela better off without making the other worse off so yes.
74
# 5.8 Case 3: Bargaining in a democracy
What makes Case 3 different to case 2?
* SAME: Bruno owns the farm and Angela is Bruno’s employee
* Property rights and freedom to reject contracts are legally protected
* DIFFERENT: Angela also has democratic political rights, Act collectively with other workers and influence laws and institutions
75
# 5.8 Case 3: Bargaining in a democracy
Why do democratic political rights matter to someone?
They allow her to:
* Seek legal and institutional change
* Influence government decisions
This can alter the rules of the economic game
This represents a modern capitalist economy
76
# 5.8 Case 3: Bargaining in a democracy
How can voting affect the contract Bruno offers Angela?
Workers’ votes can lead to:
New labour laws
Minimum wages
Safer working conditions
These laws change:
Angela’s outside options
Bruno’s contract terms
77
# 5.8 Case 3: Bargaining in a democracy
To secure votes, what may the government improve for workers?
Voters can use their legislative power to enforce changes to employment contracts
* Restriction on working hours
* Creation of a minimum wage
78
# 5.8 Case 3: Bargaining in a democracy
What does point N represent and how does this affect Angela's utility?
Angelas utility has risen shifitng her to a higher indifference curve. N is the lowest point that Angela can be offered so she has to work less hours for producing the same level of grain (wage).
79
# 5.8 Case 3: Bargaining in a democracy
What area of this graph is Bruno confined to offer Angela?
Limited to the shaded region
80
# 5.8 Case 3: Bargaining in a democracy
At what point of the shaded region does Bruno get the most grain?
Point N
81
# 5.8 Case 3: Bargaining in a democracy
Measured in terms of grain what has been the improvement to Angelas utility from IC2-ICN
7 bushels of grain
82
# 5.8 Case 3: Bargaining in a democracy
Why is Angelas rent still 0, despite being offered the same wage for less work?
She is achieving her new reservation utility but no rent as this is the new **reservation**
83
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
If allocation N is not pareto efficient what does this mean?
There are other points at which both individuals would be better off.
This would require successful negotiation.
84
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
At N: What does the graph suggest about Pareto improvements and efficiency?
The indifference curve is flatter and the feasible frontier is steeper. MRS (at N) < MRT (at M). If MRS between grain and free time is lower than rate at which free time is transformed to grain (MRS) there is possibility for Pareto improvement (to a point where MRT=MRS). So by reducing free time, both Angela and Bruno would be better off as Bruno gains more grain and Angela MRS=MRT.
85
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
Describe how this illustrates a win-win agreement
* The surplus is maximized at 16 hours of free time, where MRT = MRS.
* Between A-P=16 bushels, between M-N=12 bushels so all allocations from A-P are pareto efficient and can have a surplus of 4 bushels.
* Any allocation between A and P would be better for Angela as this would put her on a higher indifference curve than at point N
* The distance between A-R and M-N are the same meaning that Bruno would get the same rent as in contract N.
* Therefore allocations between R-P are better for Bruno so Angela can offer something in this range and therefore make her own utility 4 bushels higher
* Bruno might respond that he would accept a contract halfway between P and R, sharing the gain from moving to 16 hours equally. Angela thinks this is reasonable. She accepts a wage of 32 bushels for eight hours’ work, and Bruno gets the remaining 14 bushels she produces.
86
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
What causes the change from L-N? How did this affect power?
The change from L-N is a result of new legislation. Angela gets more structural power, raising her reservation utility.
87
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
Once legislated outcome is reached, what power does each individual have and how does this affect Pareto efficiency?
Both individuals have bargaining power and can apply this to reach a more Pareto efficient outcome where MRT=MRS. They share gains from negotiation and create a win-win situation.
88
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
To be Pareto efficient in this case what is required?
1. MRT=MRS
2. No grain is wasted
89
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
Define pareto efficiency curve
The set of all allocations that are Pareto efficient. The Pareto efficiency curve is sometimes called the ‘contract curve’, even though it is not necessary for any contract to be involved.
90
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
In this situation why is the pareto efficiency curve a straight line?
We assume that angelas indifference curves are parallel.
91
# 5.9 Case 3: Negotiating to a Pareto-efficient sharing of the surplus
What is true of all points on the red line?
At all points MRS=MRT
92
# 5.10 Lessons on the impact of institutions on efficiency and fairness
What does the Angela–Bruno example show about power, Pareto efficiency, and fairness?
1.Power: When one party has all power they capture the entire surplus. Leave the other just at their reservation option.(This outcome is Pareto efficient (no gains left), but unfair)
2. Political power: If disadvantaged groups use political power (e.g. legislation): Outcomes may become fairer (But may be Pareto inefficient (lower total surplus))
3. Institutions can utilise bargaining and legal protection to achieve both fairness and Pareto efficiency.
93
# 5.11 Distribution of income: Endowments, technology, and institutions
What is an endowment?
A person’s endowments are the things they have that enable them to receive income.
Physical wealth (for example: land, housing, machinery)
Financial wealth (for example: savings, stocks/shares, bonds)
Intellectual property (for example: patents, copyrights)
Other: knowledge, skills, abilities, and experience that affect labour income
Citizenship and rights to work.
They can include characteristics such as nationality, gender, race, and social class, if these affect their income.
94
# 5.11 Distribution of income: Endowments, technology, and institutions
What is an individuals income dependent on?
Their set of endowments and their income derived from each of these endowments (often based in different institutions)
95
# 5.11 Distribution of income: Endowments, technology, and institutions
What are endowmnets used to help us identify?
Income inequality
96
# 5.11 Distribution of income: Endowments, technology, and institutions
What is human capital?
The stock of knowledge, skills, experience, and personal attributes that influence a person’s productivity and labour earnings.
It can be increased by education and training.
97
# 5.11 Distribution of income: Endowments, technology, and institutions
How do technology and institutions affect income distribution?
They influence the value of endowments
They affect what incomes people can earn from those endowments
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# 5.11 Distribution of income: Endowments, technology, and institutions
How can institutions affect reservation options and bargaining power?
Laws (e.g., labour rights) improve a person’s reservation option
This increases their bargaining power, leading to higher income relative to others
99
# 5.11 Distribution of income: Endowments, technology, and institutions
How does inequality influence institutions and technology over time?
Higher inequality can give the wealthy more political influence
This can shape future institutions and policies in ways that reinforce inequality
Endowments influence institutions, and institutions influence endowments in a feedback loop.
100
# 5.12 Measuring economic inequality: The Gini coefficient
What is the rich/poor ratio?
The ratio of the average income among the richest 10% of people in a society to the average income of the poorest 10%.
101
# 5.12 Measuring economic inequality: The Gini coefficient
What is required to calculate the Gini coefficient?
The average of the differences between the people: In this example, it is (10 + 8 + 2)/3 = 20/3 = 6.67.
The average income of the people: In the example, this is (12 + 4 + 2)/3 = 6.
102
# 5.12 Measuring economic inequality: The Gini coefficient
What is the formula for the gini coefficent?
0.5 x (difference between the people)/(average income)
103
# 5.12 Measuring economic inequality: The Gini coefficient
What would cause a value of 1 (extreme inequality) and a value of 0 (perfect equality) on the Gini coefficient?
1: One person has all the income
difference.
Average difference = x+x+0/3=2/3 x.
Average income =x+0+0/3=1/3 x.
2/3x x 0.5 =1/3 x
1/3x divide 1/3x =1
0: Everyone has the same income
Average difference =0
Average income = x
0x0.5=0
0/x=0
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# 5.12 Measuring economic inequality: The Gini coefficient
The more unequal resources are the more ____ the gini coefficient is.
larger; between 0-1
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# 5.12 Measuring economic inequality: The Gini coefficient
Why is disposable income a better measure of living standards than total market income?
Only considers income that can be spent after tax and transfers.
106
# 5.12 Measuring economic inequality: The Gini coefficient
What is the largest reason for substaintial difference in disposable income inequality between countries?
The extent to which governments redistribute income by taxing well-off families and transferring the proceeds to the less well off
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# 5.12 Measuring economic inequality: The Gini coefficient
What is the lorenz curve?
The Lorenz curve is a graphical representation showing the distribution of income or wealth in a country, plotting the cumulative percentage of population against the cumulative percentage of total income/wealth they hold.
EC1002
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