Lecture Principles of Microeconomics - Chapter 16 "Challenge to market effectiveness 6: Inequality". After reading this chapter, you should be able to answer the following questions: Why do we face income inequality? How does inequality affect a nation? What are the problems of reducing inequality? Should the government reduce inequality? How can one make very high income? Why is there income inequality between men and women?. | Chapter 16 Challenge To Market Effectiveness 6: Inequality McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives Why do we face income inequality? How does inequality affect a nation? What are the problems of reducing inequality? Should the government reduce inequality? How can one make very high income? Why is there income inequality between men and women? Why does household inequality increase with assortative mating? How does racial discrimination affect income inequality? How does education affect inequality? 16- Inequality People are not equal before markets. Income inequality may be due to differences in choice of careers, education, skills and abilities, amount of hard work or opportunities. One reason why people object to income inequality is fairness. Whether fairness is important is a moral issue lying outside the boundaries of economics. 16- . Income Inequality Population Group Average Family Income | Chapter 16 Challenge To Market Effectiveness 6: Inequality McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives Why do we face income inequality? How does inequality affect a nation? What are the problems of reducing inequality? Should the government reduce inequality? How can one make very high income? Why is there income inequality between men and women? Why does household inequality increase with assortative mating? How does racial discrimination affect income inequality? How does education affect inequality? 16- Inequality People are not equal before markets. Income inequality may be due to differences in choice of careers, education, skills and abilities, amount of hard work or opportunities. One reason why people object to income inequality is fairness. Whether fairness is important is a moral issue lying outside the boundaries of economics. 16- . Income Inequality Population Group Average Family Income in 2001 Poorest Fifth $10,136 Second Fifth $25,468 Middle Fifth $42,629 Fourth Fifth $66,839 Richest Fifth $145,970 Top 5% $260,464 16- Inequality Inequality is a different type of market challenge. It does not lower a nation’s wealth. Government's efforts at reducing inequality often lower a nation’s wealth. When the government transfers wealth to the poor it actually encourages more people to become poor. When the government gives money to the poor, it reduces poor peoples’ incentives to work. 16- Choice and Inequality A key lesson of economics is that tradeoffs are everywhere. One tradeoff is choosing between free time and income. Some professionals must put in long work hours. Other jobs pay less but also require less time. However, not everyone has comparable choices. 16- Problems of Reducing Inequality Reducing income inequality could be unfair because some people with relatively low incomes might, overall, be no less happy than those with high incomes. .
