Poverty rate: percentage of the population whose family income falls below an
absolute level called the poverty line.
Poverty line: absolute level of income set by the federal government for each family
size below which a family is deemed to be in poverty.
Poverty is correlated with race (black/Hispanic), age (young), family composition
(single and female).
Problems measuring inequality
Based on money when poor families receive nonmonetary items like food stamps
In-kind transfers: transfers to the poor given in the form of goods and
services rather than cash.
Life cycle: the regular pattern of income variation over a person’s life.
Change in income doesn’t account for savings and debts.
Permanent income: a person’s normal income.
Unexpected changes can cause high or low income for one year. (frost)
• Inequality in material standard of living is much smaller than income.
Utilitarianism: political philosophy according to which the government should
choose policies to maximize the total utility of everyone in society.
Utility: a measure of happiness or satisfaction
Goal of government is to maximize the sum of utility achieved by society.
Diminishing marginal utility: as a person’s income rises the extra wellbeing
derived from an additional dol