Econ 101 1st Edition Lecture 8The Distribution of Income and Wealth: Chapter 21PovertyThe government concluded on an official definition of poverty: The poor were those families with incomes less than $3000 in 1964. The dividing line between the rich and the poor is knownas the Poverty Line. In 2009 the poverty line was about $22kWHO ARE THE POOR? Usually black than white More likely female than male  Less educated  Poor health HOW DO WE DEFINE POVERTY? Absolute concept of poverty: if you fall short of a certain minimum standard of living, you are poor; once you pass this standard you are no longer poor Relative concept of poverty: the poor are those who fall too far behind the average income.Once we move from an absolute to a relative concept of poverty, any sharp distinction between the poor and the nonpoor start to blur. We are then away from the narrow problem of poverty and toward the broader problem of income inequality. INEQUALITY: The distribution of income in the United States has grown substantially more unequal since about 1980. The United States has more income inequality than most other industrialized countries. “The poor are getting poorer, but with the rich getting richer it all average out in the long run.” CAUSAL FACTORS OF UNEQUAL INCOMES o Differences in Abilityo Differences in Intensity of Worko Risk Takingo Compensating Wage Differentialso Schooling and Other Types of Trainingo Work ExperienceThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Inherited Wealth o LuckDISCRIMINATION: Economic discrimination is said to occur when equivalent factors of production receive different payments for equal contributions to output. THE TRADE OFF BETWEEN EQUALITY AND EFFICIENCY: Policies that redistribute income often reduce the rewards of high-income earners while raising the rewards of low-income earners. Such policies reduce the incentive to earn high income. Such incentive effects five rise to a tradeoff that is one of the most fundamental in all of economy. (p455) *There are better and worse ways to promote equality. In pursuing further income equality (or fighting poverty), we should seek policies thatdo the least possible harm to incentives and efficiency. **Equality is bought at a price. Thus, like any commodity, society must rationally decide how much to “purchase”. We will probably want to spend some of our potential income on equality, but certainly not all of it.LESSON 1: *We should accomplish any desired redistribution by utilizing the most efficient redistributive policies.LESSON 2: **Neither complete laissez-faire nor complete equality would normally be society’s optimal