13. Median voter outcome Consider the race for councillor of a small city. The population of the city:' is evenlyI divided between three city wardsRiverville, Hanover, and Danburv. 111e councillor's race is between Ron Ruskin (the councillor of Riverville) and Tom Toolman (the councillor of Hanover). Assume that no matter what is said during the campaign, Ruskin can count on the support of100% of the Riverville population, and Toolman can count on the support of 100% ofthe Hanover population. Assume 100% voter participation. According to the result of majority rule voting, the next councillor will be the one preferred by the majority:I of the residents of V . The two candidates are asked in a debate about their support of education subsidies. Public opinion polls in Danburv have shown the following about the level of education subsidies desired: 0 40% want a low level 0 20% want a medium level 0 40% want a high level With linear preferences, the median voter model predicts that the candidates will support a V level of education subsidies. 14. Income inequality and the poverty rate The following table summarizes the income distribution for the town of Perkopia, which has a population of 10,000 people. Every individual within an income group earns the same income, and the total annual income in the economy is $500,000,000. Suppose that in 2004, the poverty line is set at an annual income of $25,300 for an individual. Note: This question uses quintiles, which are a statistical value of a data set that includes 20% of the population. This means that the population has been divided into fifths, where the first quintile is the lowest 20% of the values of the variable of interest, and so on to the fifth quintile, which is the highest 20% of the values. Share of Total Income in Perkopia (Percent) Year Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile 1998 3.2 8.0 14.0 21.8 53.0 2004 3.4 9.0 14.6 22.0 51.0 2010 3.8 9.5 15.4 22.7 48.6 2016 4.0 10.0 16.5 24.0 45.5 The data in the table suggest that there was V income inequality from 1998 to 2016.Complete the following table to help you determine the poverty rate in Perkopia in 2004. To do this, begin by determining the total income of all individuals in each quintile using the fact that total annual income in the economy is $500,000,000. Next, determine the income of an individual in each quintile by dividing the total income of that quintile by the number of people in that quintile. (Hint: Recall that Perkopia has a population of 10,000 people.) Finally, determine whether the individual income for each quintile falls below the poverty line of 25300. Share of Income in 2004 Total Income Individual Income Quintile (Percent) (Dollars) (Dollars) Below Poverty Line? Lowest 3.4 8,500 Second 9.0 45,000,000 Middle 14.6 73,000,000 36,500 Fourth 22.0 110,000,000 55,000 Highest 51.0 255,000,000 127,500 Using the information in the previous table, the poverty rate in Perkopia in 2004 is Suppose that the government introduces a welfare program in which any individual with an income of less than $25,300 per year receives a lump-sum transfer payment of $7,000 from the government. Assume that, in the short run, there is no change in labour supply behaviour among the people in Perkopia. In the year 2004, the poverty rate after the introduction of the welfare program in Perkopia is_ Again, suppose the government introduces a welfare program in which any individual with an income of less than $25,300 receives a lump-sum transfer payment of $7,000 from the government. Ginny, a resident of Perkopia who currently earns an income of $24,499, has the opportunity to work overtime and earn an additional $1,500 this year. Which of the following statements are correct? Check all that apply. O The $7,000 in aid presents a disincentive for Ginny to make more than $25,300 per year. O Ginny would gain more income by turning down the overtime than she would if she accepted the overtime. Ginny may accept the overtime if she feels that taking it will increase the chances of her receiving a significant promotion.15. Redistributive philosophies Complete the following table by selecting the redistributive philosophy that matches each statement. Statement Utilitarianism Libertarianism Liberalism The government should punish crimes and enforce voluntary agreements, but not redistribute O O O income. The government should choose policies to maximize the total utility of everyone in society. O O O The government should choose policies deemed to be just, as evaluated by an impartial O O O observer behind a "veil of ignorance." Suppose that Clancy believes that the progressive Canadian tax system is flawed because it supports equality of outcomes rather than equality of opportunity. Which redistributive philosophy is consistent with Clancy's view? O Libertarianism O Liberalism O Utilitarianism16. Redistributive philosophies and incentives Consider a society comprised of two people. Lorenzo earns an income of $115,000 per year and Neha earns an income of 530,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Lorenzo's income and give the revenue to Neha. Without any incentive distortion, Lorenzo would retain $35,250 and Neha would end up with 558,?50. However, let us assume that since Lorenzo will not receive all the income he earns, he decides to work less and earn an income of only $105,000, of which 25% x $105,000 = $26,250 will he owed in taxes. 1."I.I'ith the redistribution plan, Lorenzo will take home an income of. The 526,250 that Lorenzo pays in taxes will be transferred by the government to Neha. Let us assume that since Neha now receives payment from the government, she will not work as many hours and will earn an income from work of only 529,000 instead of her initial 530,000. 1."I.I'ith the redistribution plan, Neha's total income (including the government payment received} is now . Without a redistribution plan, total income in this society is . After the redistribution plan is implemented, total income in this society is . Therefore, the redistribution plan V total income in this society. According to the utilitarian political philosophy, the $26,250 transferred from Lorenzo to Neha will benet Neha V than it hurts Lorenzo. which of the following statements is true according to this philosophy? O The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the eiciency loss. U The government should not institute the plan because it has no right to take money from one person and give it to another. 0 The government should denitely institute the plan because it will increase overall utility. 17. The negative income tax Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income. Suppose the government uses the following equation to compute a family's tax liability: Taxes Owed = (1/2 of Income) - $6,000 For each of the incomes listed in the following table, determine the tax liability for a family with that income level. (Note: If a family receives a subsidy because its income is too low, be sure to indicate the tax liability as negative.) Income Tax Liability (Dollars per year) ( Dollars per year) 6,000 12,000 30,000 True or False: The maximum subsidy a family can receive is $3,000. True O False