Transcript Chapter 1
ECON 152 – PRINCIPLES OF MICROECONOMICS
Chapter 31: Income, Poverty
and Health Care
Materials include content from Pearson Addison-Wesley which has been modified
by the instructor and displayed with permission of the publisher. All rights reserved.
Income
Income sources
Payment
for a factor of production
Gifts
Government
transfers
Distribution of Income
The
way income is allocated among the
population
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Income
Lorenz Curve
A
geometric representation of the distribution
of income
A Lorenz curve that is perfectly straight
represents complete income equality
The more bowed a Lorenz curve, the more
unequally income is distributed
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The Lorenz Curve
Cumulative Percentage of Money Income
100
Inequality
gap
75
50
28
25
Actual money
income
distribution
45°
0
Figure 31-1
Complete
equality
25
50
75
Cumulative Percentage of Households
100
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Income
Criticisms of the Lorenz curve
It does not include income in kind.
Income received in the form of goods and services
It does not account for the differences in size of
households or the number of wage earners
households contain.
It does not account for age differences.
It ordinarily reflects money income before taxes.
It does not measure unreported income.
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Lorenz Curves of Income Distribution,
1929 and 2005
Cumulative Percentage of Money Income
100
80
60
2005
40
20
0
Figure 31-2
Complete
equality
1929
20
40
60
80
Cumulative Percentage of Households
100
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Percentage Share of Money Income
for Households Before Direct Taxes
Table 31-1
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International Example:
Income Inequality in the U.S.
Figure 31-3
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The Distribution of Wealth
The distribution of income is not the same
thing as the distribution of wealth.
Income is a flow variable; wealth is a
stock.
Income can be viewed as a return on
wealth.
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Determinants of Income Differences
Age
Age-Earnings
Cycle
The regular earnings profile of an individual
throughout his or her lifetime
•At age 18, earnings from
wages are relatively low.
•Earnings gradually rise until
they peak at about age 50.
•Earnings then fall until
retirement, when they
become zero.
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Determinants of Income Differences
Access to education
Marginal productivity
Talent
Experience
Training
Investment in human capital
Inheritance
10 percent of inequality traced to inheritance
Discrimination
Employment opportunities
Different pay for equal MRP
Equal pay for different MRP
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Determinants of Income
Differences
Doctrine of Comparable Worth
The
belief that women should receive the
same wages as men if the levels of skill and
responsibility in their jobs are equivalent
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Theories of Desired Income
Distribution
Productivity
“To
each according to what he or she
produces.”
Equality
“To
each exactly the same.”
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Poverty and Attempts to Eliminate It
Mass poverty can no longer be said to be
a problem in the Western world.
The U.S. engages in a fair amount of
income redistribution.
There is always a need to assess whether
the programs are successful.
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Official Number
of Poor in the United States
Figure 31-6
Source: U.S. Department of Labor
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Poverty and Attempts to Eliminate It
Defining poverty
Official
poverty level in 2005 for an urban
family of four was $19,000.
Adjusted annually for inflation
Does not include transfer payments
Official
poverty level in 2007 for a family of
four was $21,200. As a result, the percent of
the population in poverty was 12.5%.
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International Example: The U. S.
Poverty Level Vs. Incomes Abroad
The World Bank publishes an annual
report giving the per capita incomes of
about 150 nations.
Of these, only 26 have per capita incomes
higher than the poverty income threshold
defined for the U.S. Of course, the cost of
living is lower in such countries.
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Poverty and Attempts to Eliminate It
Attacks on poverty: major income
maintenance programs
Social
Security
OASDI (Old Age, Survivors, and Disability
Insurance)
90 percent of all employed persons covered
In 2005, 45 million people received OASDI payments
averaging $875/month
Supplemental Security Income (SSI)
Minimum
income for the aged, blind and
disabled
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Poverty and Attempts to Eliminate It
Temporary Assistance to Needy Families
(TANF)
5-year
limit for each person
Must seek training and employment
Food stamps
Government-issued
coupons that can be used
to purchase food
In 2005, one in nine citizens received food
stamps
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Poverty and Attempts to Eliminate It
Earned Income Tax Credit Program
Families
with low incomes receive a
graduated benefit
With all these programs, no apparent
reduction in poverty
1973—11
percent
1983—15 percent
1990—13.1 percent
2007—12.5 percent
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Health Care
America’s health care situation
16
percent of U.S. real GDP is devoted to
spending on health care.
Per capita spending on health care is greater
in the United States than anywhere else in the
world.
21
Percentage of Total National Income
Spent on Health Care in the United States
Figure 31-8
Source: U.S. Department of Commerce; U.S. Department of Health
and Human Services; Deloitte and Touch LLP; VHA, Inc.
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Health Care
Why have health care costs risen so
much?
The
age-health care expenditure equation
Aging population increases the demand for health
care
New
technologies
Third-party financing
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Third Party versus Out-of-Pocket
Health Care Payments
Figure 31-9
Source: Health Care Financing Administration;
U.S. Department of Health and Human Services
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Health Care
Price, quantity demanded
Large
percent of medical services payments made by
third parties
Price to the consumer drops and the quantity
demanded increases
Moral hazard and consumers
An
individual with a zero deductible for medical care
may engage in a less healthful lifestyle than one who
must pay a $1,000 deductible
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The Demand
for Health Care Services
Price
At P1 quantity
demanded is Q1.
If the price falls
to zero, quantity
demanded increases
to Q2.
P1
D
Q1
Q2
Quantity of Health Care Services per Year
Figure 31-10
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Health Care
Moral hazard as it affects physicians and
hospitals
Due
to third-party payments, patients do not have to
worry about the cost of operations and medical
procedures.
Physicians and hospitals order more of them since
they are reimbursed on the basis of medical
procedures.
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Health Care
Fully 30 percent of Medicare expenditures
are for patients in their last year of life.
Is national health insurance the answer?
40 million Americans are uninsured at some point
during the year
National health insurance would increase the
amount of national income devoted to medical
services
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Federal Medicare Spending
Figure 31-11
Source: Economic Report of the President;
U.S. Bureau of Labor Statistics
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Health Care
Countering the moral hazard problem: a
Health Savings Account (HSAs)
A
tax-exempt health care account to which
individuals would pay into on a regular basis
and from which medical care expenses could
be paid
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Issues and Applications: Should U.S. Health
Care Copy Other Nation’s Programs?
Is the rise in health care costs evidence of a crisis?
To a certain extent, residents of the U.S. choose to
spend more on health care.
In other countries, waiting lists for certain procedures
serve to dampen the amount of health care people
receive.
Recommended viewing: The movie Sicko from Michael
Moore
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ECON 152 – PRINCIPLES OF MICROECONOMICS
Chapter 31: Income, Poverty
and Health Care
Materials include content from Pearson Addison-Wesley which has been modified
by the instructor and displayed with permission of the publisher. All rights reserved.
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