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Chapter 20

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ECON 200

Microeconomics Chapter 20  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
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