ECON 402 Lecture Notes - Lecture 18: Tax Rate, Voting Paradox, Gini Coefficient
Course CodeECON 402
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1.1 The public choice model is a model that applies economic analysis to government decision making,
and can provide insight into the decisions that governments make.
1.2 The difference between the voting paradox and the Arrow impossibility theorem is that the voting
paradox refers to majority voting, while the Arrow impossibility theorem refers to all systems of voting.
1.3 Rent seeking refers to attempts by individuals and firms to use government action to make
themselves better off at the expense of others.
1.4 Government failure is a market failure due to government intervention rather than to externalities.
2.1 Individual income taxes raise the most revenue for the federal government. Sales tax raises the most
revenue for state and local governments?
2.3 A marginal tax rate is the fraction of each additional dollar of income that must be paid in taxes,
while the average tax rate is the total tax paid divided by total income. The marginal tax rate is more
important in determining the impact of the tax system on economic behavior than the average tax rate.
3.1Tax incidence is the division of the tax burden between buyers and sellers in a market
3.2 When the demand for a product is less elastic than supply, consumer spay the majority of the tax on
a product; when supply for a product is more elastic than the demand, consumers pay the majority of the
tax on the product.
4.1In 2014, the 20 percent of Americans with the lowest incomes received only 3.1 percent of all income,
while the 20 percent with the highest incomes received 51.2 percent of all income, which represents more
inequality than in 1970.
4.2The poverty line is a level of annual income equal to three times the amount of money necessary to
purchase the minimum quantity of food required for adequate nutrition. The poverty rate has decreased
from between 20 and 25 percent in 1960 to between 11 and 15 percent for the past 40 years.
4.3A Lorenz curve is a curve that shows the distribution of income by arraying incomes from lowest to
highest on the horizontal axis and indicating the cumulative fraction of income earned by each fraction
of households on the vertical axis. If a country had a Gini coefficient of 0.38 in 1960 and 0.47 in 2018,
income inequality in the country would have increased.
4.4Inequality of income is caused by technological change and the extent of international trade and
labor productivity and the productivity of capital owned.
4.5Consider the change in poverty rates between 1970 and 2010 In East Asia comma the poverty
rate dropped from 58.8 to 0.4 percent Poverty has declined from 26.8 percent of the world's
population to 4.5 percent.
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