EC120 Chapter Notes - Chapter 20: Iqvia, Income Distribution, Consumption Smoothing
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EC120 Full Course Notes
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Principle 1: trade-off between efficiency and equity. Market economics maximize efficiency: society getting the most it can from scarce resources. Equity is not necessarily a feature of market economies: distributing economic prosperity fairly among members of society, no ag(cid:396)ee(cid:373)e(cid:374)t o(cid:374) (cid:449)hat (cid:862)fai(cid:396)ly(cid:863) (cid:373)ea(cid:374)s. They generally prevent the market price from being achieved. Competitive labour markets: employees paid the value of their marginal product. Income from labour varies significantly: compensating differentials, education (signalling or human capital, experience, ability, effort, luck, height, etc, discrimination. Labour income is the primary income source for most canadians. Common descriptive approach to income equality: income quintiles: average income by income group, or share of income going to different groups. In canada: top 20% receives 51% of income, bottom 20% receives 2% of income. Governments collect taxes from individuals and firms: progressive taxes-higher income groups pay higher percentage of income as taxes. Governments transfer money to individuals and firms: progressive transfers-more to poorer quintiles.
