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ECON 300: CHAPTER 20: INCOME POVERTY AND HEALTH CARE
Income
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Income provide us a means of consuming and saving.
can be payment for labor
can be payment for other factor
can be from gifts and government transfer
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Distribution of Income
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the way income is allocated among the population based on groupings of residents
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The lorenz Curve
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a geometric represenation of the distrubution of income. it shows what share of total income in accounted for by different proportions of hte nations household
on the x axis it measure the cumulative percentage ofhouseholds lowest income first
the y axis is the cumulative percentage of money income
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additional The Lorenz Curve
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A lorens curve that is perfectly straight represents completely income equality
the more bowed a lorenz curve, the more unequally income is distributed
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income in kind
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income received in the form of good and services such as housing or medical care
to be contrasted with money income which is simply income in dollars or general purchasing porwe that can be used to buy any goods and services.
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criticisms of lorens curve
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It does not include income in kind
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 and hence provides no information on changes in inequality over time
it ordinarily reflects money income before taxes as the tax system in progressive the actual income distribution is slightly more equal
it does not measure unreported income
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Distriubution of Wealth
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the distribution of income is not the same as the distrubution of wealth
wealth includes tanfible objects and human wealth
non human wealth includes building machinery land
human wealth includes skills knowledge talent
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Distribution of Wealth
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Richest 1% of households hold 34% of wealth
Next 1% of households hold 35% of wealth
Remaining 90% holds 31% of wealth
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Determinants of Income Differences
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Age
Marginal productivity
inheritance
Discrimination
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1) age earning cycle
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the regular earnings profile of an individual throughout his or her lifetime
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2) marginal productivity
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The addition to total product when one more worker is hired
workers can increase their marginal productivity to increase their income
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Determinants of Marginal Productivity
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talent
experience
training
investment in human capital
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3) Inheritance
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10% of inequality traced to inheritance
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4) Discrimination
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-this occurs when similar workers receive different pay for the same job
ex. the medain income of non white families is lower than the median income of white families
the median income of females is lower than that of males
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Productivity/ Contributed/Merit Standard(theory of desired income distribution)
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"to each according to what she or he produces"
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Equality(theory of desired income distribution)
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to each exactly the same
everyone would receive the same income
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Problem with Egalitarian Principle
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reduces the incentive to perform better of improve ones productivity
no one would be willing to perform riskier or unpleasant jobs when there is no additional compensation
distribution according to this principle would no longer be fair
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Poverty
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the state of one who lacks a certain amount of material possesions or money
(in 2011 $22,000 for family of 4)
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relative poverty
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it will always exist
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OASDI
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Social security for old age survivors and disability
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SSI |
A nation wide minimum income for the, who are not covered by OSDAI
aged
blind
disabled
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T.A.N.F. Temporary assistance to needy families
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the program provides aid to families in need and is only a temporyry relief
was promoted to prevent the dependcy of workers on goverment aid
under the new act TANF recipients are required to find a jo within 24 months of receiving aid
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food stamps
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-goverment issued coupons that can be used to purchase food
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EITC, Earned Income Tax Credit
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Designed to provide rebates to low-and medium income individuals and couples primarily for those who have children
-discourages low income workers from taking second jobs
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Health Care
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health care is intimately related to the distribution of income and poverty
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why has health care risen so much?
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the age of health care expenditure equation
new technologies
third party financing
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Health Care Third Parties
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parties who are not directly involved in a given activity or transaction
when third parties pay for medical care the quantity demanded of these services increase
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Health Care, Moral Hazard for patients
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large percent of medical services payments made by third parties
price to the consumer drops and the qty demanded increases
and individual with a zero deductible may engage in less healthful lifestyle
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health care increase
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increased by 10% every year
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Health Insurance Exchanges
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–Government agencies to which thenational health care program assigns the task of assisting individuals,families, and small businesses in identifying health insurance policies topurchase
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national health care program effects, Labor Market:
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–Labormarket: The effective wage rate will increase as firms are now required toprovide health insurance. This will lead to a decline in employment
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national health care program effects, market for goods and services:
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The increase in labor costs that firms incur will raisetheir marginal costs and thus their output prices. Consumers will have to paymore for many goods and services
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economic effects of the national health care: government budgets
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The federal government ultimately will have to search for ways toreduce its health care expenditures and to raise more tax revenues to fund theprogram
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key componen of federal goverment national health care program
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All U.S. residents must purchasehealth insurance or pay a fine
Firms with > 50 employees mustoffer health insurance coverage or pay a fine
Families with low-income areeligible for Medicaid coverage
Businesses with < 25 employeesoffering health insurance can get tax credits
All private health insurance plansmust satisfy federal rules and regulations
A tax rate of 3.8% is applied toindividuals earning more than $200K or couples earning more than $250K to helpfund the program
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