AP_Krugman_Textbook

Summary 773

Tackle the Test: Multiple-Choice Questions

1. Which of the following is true of the U.S. poverty rate?
   a. It fell in the 1960s.
   b. There has been a clear upward trend since 1973.
   c. It was lower in 2009 than in 1973.
   d. It has remained unchanged since the mid 1970s.
   e. It has been steadily decreasing since 1959.


2. In 2009, approximately what percentage of the U.S. population
   lived in poverty?
   a. 2%
   b. 12%
   c. 20%
   d. 26%
   e. 32%


3. Average household income in the United States in 2008 was
   approximately
   a. $12,000.
   b. $22,000.
   c. $33,000.
   d. $48,201.
   e. $68,000.
   4. Programs designed to help only those with low incomes are
   called
   a. welfare programs.
   b. in-kind programs.
   c. means-tested programs.
   d. income maintenance programs.
   e. social programs.
   5. If a country has a perfectly equal distribution of income, its
   Gini coefficient equals
   a. 0.
   b. 1.
   c. 10.
   d. 50.
   e. 100.

Tackle the Test: Free-Response Questions

1. There are 100 households in the economy of Equalor. Initially,
   99 of them have an income of $10,000 each, and one household
   has an income of $1,010,000.
   a. What is the median income in this economy? What is the
   mean income?
   Through its poverty programs, the government of Equalor now
   redistributes income: it takes $990,000 away from the richest
   household and distributes it equally among the remaining 99
   households.
   b. What is the median income in this economy now? What is
   the mean income? Which indicator (mean or median
   household income) is a better indicator of the typical
   Equalorian household’s income?

Answer (5 points)

1 point:median income =$10,000

1 point:mean income =$20,000

1 point:median income =$20,000

1 point:mean income =$20,000

1 point:median

2. In your opinion, what is the strongest argument for and against
   government programs to redistribute income? To what extent
   can economics be used to resolve the debate?

Summary

1.When pollution can be directly observed and controlled,

government policies should be geared directly to pro-

ducing the socially optimal quantity of pollution,the

quantity at which the marginal social cost of pollu-

tionis equal to the marginal social benefit of pollu-

tion.In the absence of government intervention, a

market produces too much pollution because polluters

take only their benefit from polluting into account, not

the costs imposed on others.

2.The cost to society of pollution from a power plant is an

example of an external cost;the benefit to neighbors of

beautiful flowers planted in your yard is an example of

anexternal benefit.External costs and benefits are

jointly known as externalities,with external costs

callednegative externalitiesand external benefits

calledpositive externalities.

Section 14 Review

Section 14 Summary