MCQs of Economics - Income Inequality – Multiple Choice Question

Question 1 of 55

1. Question

Because in-kind transfers are not accounted for in standard measures of income distribution the standard measures of income distribution

accurately represent the true inequality of living standards
understate the inequality of living standards
exaggerate the inequality of living standards
could exaggerate of understate the inequality of living standards depending on whether the transfers are goods or services.

Question 2 of 55

2. Question

Permanent income is

Social Security income of the elderly and disabled
none of these answers
wages fixed by a union or other labour contract
equal to the minimum wage
a person's normal or average income

Question 3 of 55

3. Question

A period of unemployment due to recession will:

increase a worker's current income and permanent income
reduce a worker's current income but not necessarily their permanent income
affect neither the current nor the permanent income of a worker
reduce a worker's permanent income but not their current income

Question 4 of 55

4. Question

Because people’s income vary other the life cycle and because there are transitory shocks to people’s incomes the standard measures of income distribution

exaggerate the inequality of living standards
could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative
understate the inequality of living standards
accurately represent the true inequality of living standards

Question 5 of 55

5. Question

If people can borrow and lend to perfectly smooth out their lifetime living standards then

transitory income is a good measure of the distribution of living standards
none of these answers
permanent income is a good measure of the distribution of living standards.
life-cycle income is a good measure of the distribution of living standards.
current annual income is a good measure of the distribution of living standards.

Question 6 of 55

6. Question

Mariam earns more than Seamus and she came by her income fairly and honestly which of the following political philosophies would argue against the redistribution of income from Mariam to Seamus?

all of these answers
libertarianism
utilitarianism
none of these answers

Question 7 of 55

7. Question

The maximin criterion suggested by Rawls’s theory of justice means that the government should aim to:

Maximize the total utility of society
Maximize the well-being of the worst-off person in society
minimize the difference between the rich and poor
maximize the economic freedom of individuals by minimizing government interference in private decision making
minimize the well-being of the best-off person in society

Question 8 of 55

8. Question

Rank utilitarianism liberalism, and libertarianism in sequence from the political philosophy that would redistribute income the greatest to the one that would redistribute income the least.

utilitarianism, liberalism, libertarianism
All three political philosophies argue for similar degree of income redistribution
liberalism, libertarianism, utilitarianism
libertarianism liberalism, utilarianism
libertariansim, utilitarianism, libertarianism

Question 9 of 55

9. Question

Utilitarianism suggests that the government should choose policies that maximize the total utility of everyone in society by

redistributing income from rich to poor because this is what the members of society would choose to do if they were behind a veil of ignorance
redistributing income from rich to poor because due to the diminishing marginal utility of income, taking a pound from the rich reduces their utility by less than the gain in utility generated by giving a pound to the poor
allowing each individual to maximize their own utility without interference from the government
redistributing income from rich to poor because this would maximize the well-being of the worst-off person in society.

Question 10 of 55

10. Question

Rawls’s suggestion that policy should be directed at maximizing the welfare of the least well off person in society is derived from

the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that as long as there is no theft then there is no need for governments to intervene and redistribute income.
the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution
the idea that people a veil of ignorance as policy as if behind a veil of ignorance as to what their circumstances might be in society, and the ignorant people should be looked after
the idea that everyone in society should have an equal income

Question 11 of 55

11. Question

Rawls’s miximin criterion does not mean that there should be redistribution so as to equalise everyone’s incomes in society because

Such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair.
such redistribution would not maximize the total income of all members of society
Such redistribution would remove the incentive to work hard, so society's total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality income.
such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust.

Question 12 of 55

12. Question

An increase in the minimum wage will cause a relatively large increase in unemployment among

unskilled workers if the demand for labour is relatively inelastic
unskilled workers if the demand for labour is relatively elastic
skilled workers if the demand for labour is relatively elastic
skilled workers if the demand for labour is relatively inelastic

Question 13 of 55

13. Question

Current anti-poverty programs discourage work because

benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits.
in order to be eligible for benefits a recipient cannot have a job
they make recipients more comfortable than most middle-class citizens.
anti-poverty programs attract naturally lazy people to begin with.

Question 14 of 55

14. Question

The greatest advantage of a negative income tax is that it

generates a smaller disincentive to work than most alternative anti-poverty policies.
reduces the cost to the government of fighting poverty
would not provide benefits to lazy people
ensures that the poor actually receive what the government thinks they need does all these answers.

Question 15 of 55

15. Question

The poverty trap refers to

a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received
a situation in which workers are unable to find jobs.
a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax
a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.

Question 16 of 55

16. Question

Constrained choice is relevant for households:

making spending decision but not labour-supply decision.
making both spending and labour-supply decisions
considered to be 'poor' but not for those who are considered to be 'rich'
making labour-supply decisions but not spending decisions.

Question 17 of 55

17. Question

The idea that the demand for car workers stems from the demand for cars is:

output demand
indirect demand
derived demand
the value of the marginal product of auto workers.

Question 18 of 55

18. Question

Assuming leisure is a normal good, if the income effect is greater than the substitution effect a wage increase:

will have no effect on labour supply
will decreases labour supply
could cause either an increases or a decrease in labour supply
will increase labour supply.

Question 19 of 55

19. Question

The substitution effect of higher wages suggests that as the wage rate increases:

leisure becomes less expensive and households buy more of it
leisure becomes more expensive and households buy more of it
leisure becomes more expensive and households buy less of it
leisure becomes less expensive and households buy less of it.

Question 20 of 55

20. Question

Assuming that leisure is a normal good. if an individual’s labour supply curve is backward bending then the:

income effect is zero
substitution effect outweighs the income effect
income effect outweighs the substitution effect
income effect and the substitution effects are equal

Question 21 of 55

21. Question

If the income effect is smaller than the substitution effect, higher net wages will:

reduce the supply of labour.
increase the demand for labour
increase the supply of labour
have no effect on the supply of labour

Question 22 of 55

22. Question

As the wage rate per hour increases, the opportunity cost of leisure

remains constant
increases since the cost of forgoing one hour of work increases
decreases since the customer now has more income to spend
may increase of decrease depending on the individual's preferences.

Question 23 of 55

23. Question

Differences in wages that result from differences in working conditions are known as:

occupational differentials
search differentials
job differentials.
compensating differentials

Question 24 of 55

24. Question

New technology in the form of computer spreadsheets has increased the productivity of accountants. This will cause

the demand curve for accountants to shift to the right, since the productivity of accountants has increased
firms to move up their demand curves for accountants
the demand curve for accountants to shift to the left, since it requires fewer accountants than it did before to do the same amount of work.
firms to move down their demand curves for accountants

Question 25 of 55

25. Question

The marginal product of variable input is best described as:

the ratio of the amount of the variable input that is being used to the amount of the fixed input that is being used.
the additional output resulting from a one unit increase in the variable input
total product divided by the number of units of variable input
the additional output resulting from a one unit increases in both the variable and fixed inputs

Question 26 of 55

26. Question

In a competitive labour market firms will hire labour up to the point where the marginal revenue product of labour equals:

total labour cost
the marginal product
the price of the product
the wage rate

Question 27 of 55

27. Question

The marginal revenue product of labour is:

the marginal product of capital times the price of labour.
the additional revenue a firm earns by employing on additional unit of labour
the additional profit a firms earns by employing one additional unit of labour
the additional revenue the firm makes by selling one unit of labour.

Question 28 of 55

28. Question

The formula for the marginal revenue product of labour (L is for labour, X is the product) is:

MPL + PX
(MPL) (PX)
PX/MPL
MPL/PX

Question 29 of 55

29. Question

If output price is constant, the marginal revenue product of labour curve will have the same shape as the:

total variable cost curve
marginal cost curve
total product of labour curve
marginal product of labour curve

Question 30 of 55

30. Question

An unemployed salesperson has been offered a job paying Rs500 a week. He turns that job down and continues to search for another job that pays more. The cost of this continued search is

the Rs500 weekly salary that he has forgone to search for another job
The Rs500 weekly salary that he has forgone and the monetary costs incurred by continuing to search
Rs difference between the weekly salary he finally accepts and the Rs500 weekly salary that he has forgone
Rs0, since he is currently unemployed

Question 31 of 55

31. Question

Unemployment benefits may increase the unemployment rate because unemployment benefits.

encourage people to quit their jobs
reduce the cost of job search
enable people to quit searching for work
reduce the benefits of additional job searching

Question 32 of 55

32. Question

If labour market discrimination crowds women into a limited number of occupations so that the number of occupations available to men increases, then:

wages of men will be higher but the marginal productivity of men will be lower than it otherwise would be
the wages of men will be lower but the marginal productivity of men will be higher than it otherwise would be
both the wages and the marginal productivity of men will be lower than they otherwise would be
both the wages and the marginal productivity of men will be higher than they otherwise would be

Question 33 of 55

33. Question

The stock of knowledge, skills and talents that people possess is called:

training investment
skill capital
skill-building investment
human capital

Question 34 of 55

34. Question

The term ‘rent’ as it is used by economists. refers to

the return to any factor of production that is in fixed supply
the profit earned by the owner of any housing unit.
the amount paid each year by a tenant for an apartment
any profit earned by stockholders when they sell their stock

Question 35 of 55

35. Question

Supply of land in a given use:

will be perfectly inelastic in the long run. but upward sloping in the short run
is perfectly inelastic since there is a fixed amount of land
is perfectly elastic since there is fixed amount of land
will be upward sloping because as land becomes more valuable in once use, the amount of land made available for that use will increase

Question 36 of 55

36. Question

If income were distributed equally the lorenz curve would be:

a 45 degree line between 0 and 100%
a line lying directly on the vertical axis at 0%
a line lying directly on the vertical axis at 100%
a line lying directly on the horizontal axis

Question 37 of 55

37. Question

The Gini coefficient is:

the ratio of the percentage of total income received by the top 20% of families to the percentage of total income received by by the bottom 20% of families
the most common way of representing the income distribution graphically
a commonly used measure of the degree of inequality in an income distribution
a commonly used measure of the degree of inequity in an income distribution

Question 38 of 55

38. Question

A Gini coefficient of zero means that the:

the income is split equally between the top 20% and the rest of the distribution
one person has all the income and every one else has nothing
all the income is received by the top 20% of the income distribution
income is equally distributed

Question 39 of 55

39. Question

A Gini coefficient of one means that:

all the income is received by the top 20% of the income distribution
income is distributed equally
the income is split equally between the top 20% and the rest of the distribution.
one family has all the income and every one else has nothing.

Question 40 of 55

40. Question

The measure or value upon which a tax is levied is the:

tax rate
tax incidence
tax structure
tax base

Question 41 of 55

41. Question

Horizontal equity holds that:

those with equal ability to pay should bear unequal tax burdends.
those who benefits the most from government services should bear the higher tax burden.
those who benefit the most from government services should have the greatest voice in determining what gets produced
those with equal ability to pay should bear equal tax burdens.

Question 42 of 55

42. Question

Vertical equity holds that

those will equal ability to pay should bear equal tax burdens.
those who benefit the most from government service should bear the higher tax burden
those with equal ability to pay should bear unequal burdens
those with greater ability to pay should pay more

Question 43 of 55

43. Question

The total amount of tax you pay divided by your total income is the:

average tax rate
marginal tax rate
proportional tax rate
total tax rate

Question 44 of 55

44. Question

The marginal tax rate is:

the tax rate you pay on any additional income that you earn.
the total amount of tax you pay divided by your total income
the additional tax you pay divided by your total income
your total income divided by the total amount of tax you pay.

Question 45 of 55

45. Question

A tax whose burden is the same proportion of income for all households is:

an equal tax
a proportional tax
a progressive tax
a regressive tax

Question 46 of 55

46. Question

A progressive income tax means that those with a higher income pay

a higher percentage of their income in taxes then low income people
a lower percentage of their income in taxes than low income people
the same percentage of their income in taxes as low income people all the taxes in the economy.
all the taxes in the economy

Question 47 of 55

47. Question

A tax whose burden expressed as a percentage of income, falls as income increases is a:

benefits received tax
progressive tax
regressive tax
proportional tax

Question 48 of 55

48. Question

Tax incidence is the:

structure of the tax.
ultimate distribution of a tax's burden
behaviour of shifting the tax to another party
measure of the impact the tax has on employment and output

Question 49 of 55

49. Question

Tax shifting:

is the way in which a tax is structured
occurs when households can alter their behaviour and do something to avoid paying tax
occurs when taxes cause prices to increase but wages to fall.
is the ultimate distribution of a tax's burden

Question 50 of 55

50. Question

Where a tax can be shifted the incidence depends on:

whether there is perfect or imperfect information
who is legally obliged to pay the tax
elasticities of demand and supply
how many producers there are:

Question 51 of 55

51. Question

An example of an indirect tax is:

income tax
VAT
a tax on profits.
inheritance tax

Question 52 of 55

52. Question

VAT is a good example of which kind of tax?

specific
Direct
Ad valorem
Excise duty

Question 53 of 55

53. Question

Housing Benefit is a good example of:

a means tested cash benefit
a universal (social insurance based) benefit
a benefit in kind
none of the above

Question 54 of 55

54. Question

The Benazir Benefit income Scheme is a good example of:

a benefit in kind.
a means tested cash benefit
a universal (social insurance based) benefit
none of the above

Question 55 of 55

55. Question

In Pakistan the term the poverty trap is used to describe the fact that:

poor people are excluded from most leisure and social activities
the Pakistan benefit system makes being poor vary degrading
if poor people earn more their benefits fall, making them no better off.
in the Pakistan poor people are heavily taxed

Economics - Income Inequality

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