CHAPTER 34
CHAPTER 34
Income Distribution, Poverty, and Government Policy
Summary
1. Are incomes distributed equally in the United States?
The Lorenz curve illustrates the degree of income inequality. §1.
If the Lorenz curve corresponds with the line of income equality, then incomes are distributed equally. If the Lorenz curve bows down below the line of income equality, then income is distributed in such a way that more people earn low incomes than earn high incomes. §1.a
2. How is poverty measured, and does poverty exist in the United States?
• Poverty is a measure of how well basic human needs are being met. Poverty is both a relative and an absolute concept. §1.b
• Income consists of resource earnings and transfers. Transfers may be in cash or in kind. The distribution of income in the United States is more unequal when only market earnings are considered than it is when transfers as well as market earnings are considered. §1.c
• The incidence of poverty decreases as the economy grows and increases as the economy falls into recession. §1.c
3. Who are the poor?
• Many people fall below the poverty line for a short time only. However, a significant core of people remain in poverty for at least ten years. §2.a
• The poor are primarily those without jobs (the youngest and oldest members of society), those residing in the centers of large cities and in rural areas, and those without education. §2.b
4. What are the determinants of poverty?
• Age, a lack of education, and a lack of a full-time or well-paying job are the primary determinants of poverty. §2.b
5. Do government programs intended to reduce poverty benefit the poor?
• Tax policies that are progressive could reduce the incentives to acquire more income. §3.c.1
• Government programs often reduce individuals’ incentives to climb out of poverty. §3.c.2
• Subsidies could offset incentives to work or produce. §3.c.2
6. Why are incomes unequally distributed among nations?
• As a rule, incomes are distributed more unequally in developing countries than in developed countries. §4
• A fundamental reason that standards of living differ among nations is the different growth rates that the economies of these nations have experienced over time. §4.a
• Free markets and political freedom lead to economic growth. §4.a
• The creation and enforcement of private property rights is a necessity if a nation’s economy is to grow. §4.b
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