Income Inequality MCQs

Option A: a benefit in kind.

Option B: a means tested cash benefit

Option C: a universal (social insurance based) benefit

Option D: none of the above

Correct Answer: a benefit in kind. ✔

Option A: specific

Option B: Direct

Option C: Ad valorem

Option D: Excise duty

Correct Answer: Ad valorem ✔

Option A: whether there is perfect or imperfect information

Option B: who is legally obliged to pay the tax

Option C: elasticities of demand and supply

Option D: how many producers there are:

Correct Answer: elasticities of demand and supply ✔

Option A: structure of the tax.

Option B: ultimate distribution of a tax’s burden

Option C: behaviour of shifting the tax to another party

Option D: measure of the impact the tax has on employment and output

Correct Answer: B. ultimate distribution of a tax’s burden ✔

Option A: a higher percentage of their income in taxes then low income people

Option B: a lower percentage of their income in taxes than low income people

Option C: the same percentage of their income in taxes as low income people all the taxes in the economy.

Option D: all the taxes in the economy

Correct Answer: a higher percentage of their income in taxes then low income people ✔

Option A: the tax rate you pay on any additional income that you earn.

Option B: the total amount of tax you pay divided by your total income

Option C: the additional tax you pay divided by your total income

Option D: your total income divided by the total amount of tax you pay.

Correct Answer: the tax rate you pay on any additional income that you earn. ✔

Option A: those will equal ability to pay should bear equal tax burdens.

Option B: those who benefit the most from government service should bear the higher tax burden

Option C: those with equal ability to pay should bear unequal burdens

Option D: those with greater ability to pay should pay more

Correct Answer: those with greater ability to pay should pay more ✔

Option A: the income is split equally between the top 20% and the rest of the distribution

Option B: one person has all the income and every one else has nothing

Option C: all the income is received by the top 20% of the income distribution

Option D: income is equally distributed

Correct Answer: all the income is received by the top 20% of the income distribution ✔

Option A: will be perfectly inelastic in the long run. but upward sloping in the short run

Option B: is perfectly inelastic since there is a fixed amount of land

Option C: is perfectly elastic since there is fixed amount of land

Option D: will be upward sloping because as land becomes more valuable in once use, the amount of land made available for that use will increase

Correct Answer: will be upward sloping because as land becomes more valuable in once use, the amount of land made available for that use will increase ✔

Option A: training investment

Option B: skill capital

Option C: skill-building investment

Option D: human capital

Correct Answer: human capital ✔

Option A: encourage people to quit their jobs

Option B: reduce the cost of job search

Option C: enable people to quit searching for work

Option D: reduce the benefits of additional job searching

Correct Answer: reduce the cost of job search ✔

Option A: total variable cost curve

Option B: marginal cost curve

Option C: total product of labour curve

Option D: marginal product of labour curve

Correct Answer: marginal product of labour curve ✔

Option A: the marginal product of capital times the price of labour.

Option B: the additional revenue a firm earns by employing on additional unit of labour

Option C: the additional profit a firms earns by employing one additional unit of labour

Option D: the additional revenue the firm makes by selling one unit of labour.

Correct Answer: the additional revenue the firm makes by selling one unit of labour. ✔

Option A: the demand curve for accountants to shift to the right, since the productivity of accountants has increased

Option B: firms to move up their demand curves for accountants

Option C: the demand curve for accountants to shift to the left, since it requires fewer accountants than it did before to do the same amount of work.

Option D: firms to move down their demand curves for accountants

Correct Answer: the demand curve for accountants to shift to the right, since the productivity of accountants has increased ✔

Option A: remains constant

Option B: increases since the cost of forgoing one hour of work increases

Option C: decreases since the customer now has more income to spend

Option D: may increase of decrease depending on the individual’s preferences.

Correct Answer: increases since the cost of forgoing one hour of work increases ✔

Option A: income effect is zero

Option B: substitution effect outweighs the income effect

Option C: income effect outweighs the substitution effect

Option D: income effect and the substitution effects are equal

Correct Answer: income effect outweighs the substitution effect ✔

Option A: will have no effect on labour supply

Option B: will decreases labour supply

Option C: could cause either an increases or a decrease in labour supply

Option D: will increase labour supply.

Correct Answer: will decreases labour supply ✔

Option A: making spending decision but not labour-supply decision.

Option B: making both spending and labour-supply decisions

Option C: considered to be ‘poor’ but not for those who are considered to be ‘rich’

Option D: making labour-supply decisions but not spending decisions.

Correct Answer: making both spending and labour-supply decisions ✔

Option A: generates a smaller disincentive to work than most alternative anti-poverty policies.

Option B: reduces the cost to the government of fighting poverty

Option C: would not provide benefits to lazy people

Option D: ensures that the poor actually receive what the government thinks they need does all these answers.

Correct Answer: generates a smaller disincentive to work than most alternative anti-poverty policies. ✔

Option A: unskilled workers if the demand for labour is relatively inelastic

Option B: unskilled workers if the demand for labour is relatively elastic

Option C: skilled workers if the demand for labour is relatively elastic

Option D: skilled workers if the demand for labour is relatively inelastic

Correct Answer: unskilled workers if the demand for labour is relatively elastic ✔

Option A: the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that as long as there is no theft then there is no need for governments to intervene and redistribute income.

Option B: the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution

Option C: the idea that people a veil of ignorance as policy as if behind a veil of ignorance as to what their circumstances might be in society, and the ignorant people should be looked after

Option D: the idea that everyone in society should have an equal income

Correct Answer: the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution ✔

Option A: utilitarianism, liberalism, libertarianism

Option B: All three political philosophies argue for similar degree of income redistribution

Option C: liberalism, libertarianism, utilitarianism

Option D: libertarianism liberalism, utilarianism

Correct Answer: libertariansim, utilitarianism, libertarianism ✔

Option A: all of these answers

Option B: libertarianism

Option C: utilitarianism

Option D: none of these answers

Correct Answer: libertarianism ✔

Option A: exaggerate the inequality of living standards

Option B: could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative

Option C: understate the inequality of living standards

Option D: accurately represent the true inequality of living standards

Correct Answer: exaggerate the inequality of living standards ✔

Option A: Social Security income of the elderly and disabled

Option B: none of these answers

Option C: wages fixed by a union or other labour contract

Option D: equal to the minimum wage

Correct Answer: E. a person’s normal or average income ✔

Option A: poor people are excluded from most leisure and social activities

Option B: the Pakistan benefit system makes being poor vary degrading

Option C: if poor people earn more their benefits fall, making them no better off.

Option D: in the Pakistan poor people are heavily taxed

Correct Answer: if poor people earn more their benefits fall, making them no better off. ✔

Option A: a means tested cash benefit

Option B: a universal (social insurance based) benefit

Option C: a benefit in kind

Option D: none of the above

Correct Answer: a means tested cash benefit ✔

Option A: income tax

Option B: VAT

Option C: a tax on profits.

Option D: inheritance tax

Correct Answer: VAT ✔

Option A: is the way in which a tax is structured

Option B: occurs when households can alter their behaviour and do something to avoid paying tax

Option C: occurs when taxes cause prices to increase but wages to fall.

Option D: is the ultimate distribution of a tax’s burden

Correct Answer: occurs when households can alter their behaviour and do something to avoid paying tax ✔

Option A: benefits received tax

Option B: progressive tax

Option C: regressive tax

Option D: proportional tax

Correct Answer: regressive tax ✔

Option A: an equal tax

Option B: a proportional tax

Option C: a progressive tax

Option D: a regressive tax

Correct Answer: a proportional tax ✔

Option A: average tax rate

Option B: marginal tax rate

Option C: proportional tax rate

Option D: total tax rate

Correct Answer: total tax rate ✔

Option A: those with equal ability to pay should bear unequal tax burdends.

Option B: those who benefits the most from government services should bear the higher tax burden.

Option C: those who benefit the most from government services should have the greatest voice in determining what gets produced

Option D: those with equal ability to pay should bear equal tax burdens.

Correct Answer: those with equal ability to pay should bear equal tax burdens. ✔

Option A: all the income is received by the top 20% of the income distribution

Option B: income is distributed equally

Option C: the income is split equally between the top 20% and the rest of the distribution.

Option D: one family has all the income and every one else has nothing.

Correct Answer: one family has all the income and every one else has nothing. ✔

Option A: the ratio of the percentage of total income received by the top 20% of families to the percentage of total income received by by the bottom 20% of families

Option B: the most common way of representing the income distribution graphically

Option C: a commonly used measure of the degree of inequality in an income distribution

Option D: a commonly used measure of the degree of inequity in an income distribution

Correct Answer: the ratio of the percentage of total income received by the top 20% of families to the percentage of total income received by by the bottom 20% of families ✔

Option A: the return to any factor of production that is in fixed supply

Option B: the profit earned by the owner of any housing unit.

Option C: the amount paid each year by a tenant for an apartment

Option D: any profit earned by stockholders when they sell their stock

Correct Answer: the return to any factor of production that is in fixed supply ✔

Option A: wages of men will be higher but the marginal productivity of men will be lower than it otherwise would be

Option B: the wages of men will be lower but the marginal productivity of men will be higher than it otherwise would be

Option C: both the wages and the marginal productivity of men will be lower than they otherwise would be

Option D: both the wages and the marginal productivity of men will be higher than they otherwise would be

Correct Answer: both the wages and the marginal productivity of men will be higher than they otherwise would be ✔

Option A: the Rs500 weekly salary that he has forgone to search for another job

Option B: The Rs500 weekly salary that he has forgone and the monetary costs incurred by continuing to search

Option C: Rs difference between the weekly salary he finally accepts and the Rs500 weekly salary that he has forgone

Option D: Rs0, since he is currently unemployed

Correct Answer: The Rs500 weekly salary that he has forgone and the monetary costs incurred by continuing to search ✔

Option A: MPL + PX

Option B: (MPL) (PX)

Option C: PX/MPL

Option D: MPL/PX

Correct Answer: PX/MPL ✔

Option A: total labour cost

Option B: the marginal product

Option C: the price of the product

Option D: the wage rate

Correct Answer: the marginal product ✔

Option A: occupational differentials

Option B: search differentials

Option C: job differentials.

Option D: compensating differentials

Correct Answer: compensating differentials ✔

Option A: reduce the supply of labour.

Option B: increase the demand for labour

Option C: increase the supply of labour

Option D: have no effect on the supply of labour

Correct Answer: increase the supply of labour ✔

Option A: leisure becomes less expensive and households buy more of it

Option B: leisure becomes more expensive and households buy more of it

Option C: leisure becomes more expensive and households buy less of it

Option D: leisure becomes less expensive and households buy less of it.

Correct Answer: leisure becomes more expensive and households buy less of it ✔

Option A: output demand

Option B: indirect demand

Option C: derived demand

Option D: the value of the marginal product of auto workers.

Correct Answer: derived demand ✔

Option A: a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received

Option B: a situation in which workers are unable to find jobs.

Option C: a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax

Option D: a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.

Correct Answer: a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax ✔

Option A: benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits.

Option B: in order to be eligible for benefits a recipient cannot have a job

Option C: they make recipients more comfortable than most middle-class citizens.

Option D: anti-poverty programs attract naturally lazy people to begin with.

Correct Answer: benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits. ✔

Option A: Such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair.

Option B: such redistribution would not maximize the total income of all members of society

Option C: Such redistribution would remove the incentive to work hard, so society’s total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality income.

Option D: such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust.

Correct Answer: C. Such redistribution would remove the incentive to work hard, so society’s total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality income. ✔

A. redistributing income from rich to poor because this is what the members of society would choose to do if they were behind a veil of ignorance
B. redistributing income from rich to poor because due to the diminishing marginal utility of income, taking a pound from the rich reduces their utility by less than the gain in utility generated by giving a pound to the poor
C. allowing each individual to maximize their own utility without interference from the government
redistributing income from rich to poor because this would maximize the well-being of the worst-off person in society

Correct Answer: redistributing income from rich to poor because due to the diminishing marginal utility of income, taking a pound from the rich reduces their utility by less than the gain in utility generated by giving a pound to the poor ✔

Option A: Maximize the total utility of society

Option B: Maximize the well-being of the worst-off person in society

Option C: minimize the difference between the rich and poor

Option D: maximize the economic freedom of individuals by minimizing government interference in private decision making

Correct Answer: Maximize the well-being of the worst-off person in society ✔

Option A: transitory income is a good measure of the distribution of living standards

Option B: none of these answers

Option C: permanent income is a good measure of the distribution of living standards.

Option D: life-cycle income is a good measure of the distribution of living standards.

Correct Answer: permanent income is a good measure of the distribution of living standards. ✔

Option A: increase a worker’s current income and permanent income

Option B: reduce a worker’s current income but not necessarily their permanent income

Option C: affect neither the current nor the permanent income of a worker

Option D: reduce a worker’s permanent income but not their current income

Correct Answer: B. reduce a worker’s current income but not necessarily their permanent income ✔

Option A: accurately represent the true inequality of living standards

Option B: understate the inequality of living standards

Option C: exaggerate the inequality of living standards

Option D: could exaggerate of understate the inequality of living standards depending on whether the transfers are goods or services.

Correct Answer: exaggerate the inequality of living standards ✔