Keep the Highest 2.3 / 5 1. 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 2019, the poverty line is set at an annual income of $28,000 for an individual. Share of Total Income in Perkopia (Percent) Year Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile 2001 3.2 8.3 14.0 21.5 53.0 2007 3.3 9.2 14.9 22.0 50.6 2013 3.7 9.6 15.0 22.8 48.9 2019 4.0 10.0 16.0 23.0 47.0 income inequality from 2001 to 2019. The data in the table suggest that there wasHomework (Ch 20) X Complete the following table to help you determine the poverty rate in Perkopia in 2019. 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 $28,000. A- Share of Income in 2019 Total Income Individual Income Quintile (Percent) (Dollars) (Dollars) Below Poverty Line? Lowest 4.0 Second 10.0 Middle 16.0 Fourth 23.0 Highest 47.0 Using the information in this table, the poverty rate in Perkopia in 2019 is V Suppose that the government introduces a welfare program in which any individual with an income of less than $28,000 per year receives a lump-sum transfer payment of $4,000 from the government. Assume that, in the short run, there is no change in labor-supply behavior among the people in Perkopia. In the year 2019, 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 $28,000 receives a lump-sum transfer payment of $4,000 from the government. Manuel, a resident of Perkopia who currently earns an income of $27,898, has the opportunity to work overtime and earn an additional $1,000 this year.Highest 47.0 Using the information in this table, the poverty rate in Perkopia in 2019 is V Suppose that the government introduces a welfare program in which any individual with an income of less than $28,000 per year receives a lump-sum transfer payment of $4,000 from the government. Assume that, in the short run, there is no change in labor-supply behavior among the people in Perkopia. In the year 2019, 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 $28,000 receives a lump-sum transfer payment of $4,000 from the government. Manuel, a resident of Perkopia who currently earns an income of $27,898, has the opportunity to work overtime and earn an additional $1,000 this year. Which of the following statements are correct? Check all that apply. Q Manuel may accept the overtime if he feels that taking it will increase the chances of his receiving a significant promotion. Manuel would gain more income by turning down the overtime than he would if he accepted the overtime. The $4,000 in aid presents a disincentive for Manuel to make more than $28,000 per year. XNasir brings $40 to his local college hockey game in order to purchase cheeseburgers and seltzer. The following diagram presents his budget constraint: 20 18 16 BC 14 K 10 CANS OF SELTZER A NO BC 18 20 8 10 12 14 16 CHEESEBURGERSBC 14 12 10 CANS OF SELTZER EI Co BC 0 2 6 8 10 12 14 16 18 20 CHEESEBURGERS According to the diagram, cheeseburgers cost $ each, and seltzer costs $ per can. Adjust the diagram to show how Nasir's budget constraint would change if he had brought less money to the arena. (Assume the prices of cheeseburgers and seltzer remain the same.) Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther.Homework (Ch 21) Tim enjoys both pretzels and seltzer. Assume that the "more is better" principle holds for Tim, meaning that he would always prefer to consume more of either good, holding the level of consumption of the other good constant. E The two figures below present information regarding Tim's preferences. The points on Figure 1 represent combinations of seltzer and pretzels that Tim might choose to consume. Figure 2 plots the same points as Figure 1, but it also shows some of Tim's indifference curves: I1, 12, and 13. Thus, Figure 2 gives more insight into Tim's preferences than Figure 1. ? Figure 1 Figure 2 K OD 13 OD CO O A PRETZELS (Bags) PRETZELS (Bags) E B O G F B GPRETZELS PRETZELS (B B R G A-Z EI SELTZER (Cans) SELTZER (Cans) Complete the following table by indicating which bundles Tim strictly prefers to H given only the information in each figure. Information Given By... A B C D E F G Figure 1 0 0 Figure 2 Indicate whether each of the following statements is true or false given the graphs. Statement True False Figure 1 does not provide enough information to compare the utility Tim receives from A versus E. O O Figure 2 indicates that Tim is indifferent among bundles A and E. O O zoomAttempts Keep the Highest / 2 E 5. Complements and substitutes Eileen likes to eat toast with strawberry jam and drink seltzer. She enjoys these items in very specific proportions: For every piece of toast with strawberry jam she eats, she drinks exactly one glass of seltzer, and vice versa. Eileen can purchase the strawberry jam for her toast in two jar sizes: 20 ounces and 40 ounces. Eileen cares only about the total amount of strawberry jam she has available and not at all about the jar size. In other words, she's just as happy with two 20-ounce jars as she is with one 40- ounce jar. In this scenario, toast with strawberry jam and glasses of seltzer are Two possible bundles of toast with strawberry jam and glasses of seltzer are shown on the following graph, labeled A and B. Using three purple points (diamond symbol), plot Eileen's indifference curve that passes through point A (11 ). Then, using three orange points (square symbol), plot Eileen's indifference curve that passes through point B (12). Hint: To plot both indifference curves, place one point on the edge of the graph, another point on either point A or B respectively, and the final point on another edge of the graph.symbol), plot Eileen's indifference curve that passes through point B (12). on another edge of the graph. Hint: To plot both indifference curves, place one point on the edge of the graph, another point on either point A or B respectively, and the final point 12 11 10 N TOAST WITH STRAWBERRY JAM N 0 O 2 3 5 6 7 8 9 10 11 12 GLASSES OF SELTZERHomework (Ch 21) Felix plays the cello as part of a string duo and advertises booking opportunities using brochures he distributes in coffee shops around the city. Making X one grayscale brochure costs $0.02, but adding color increases the cost to $0.08 per brochure. Felix sets aside a monthly budget of $14.00 for creating brochures. E The following graph shows three of Felix's indifference curves for the number of grayscale and color brochures that he makes. Use the green line (triangle symbol) to plot Felix's budget constraint. Then, place the black point (plus symbol) on the graph to indicate Felix's optimal consumption choice given that budget constraint. 1000 900 Budget Constraint 800 700 Optimum 600 500 GRAYSCALE BROCHURES 400 N 300 C- 200 100 zoom1000 900 Budget Constraint 700 Optimum 600 K 500 GRAYSCALE BROCHURES 400 300 N 200 100 100 125 150 175 200 225 250 25 50 75 COLOR BROCHURES in grayscale per brochure in At the optimum that you indicated on the graph, Felix's marginal rate of substitution is equal to color.X Neha likes going to the ballpark to watch baseball, and she also is fond of going to the theater to listen to the symphony orchestra. The following diagram shows two of Neha's indifference curves for going to ballgames and symphonies. With Neha's initial budget constraint (BC1 ), she chose to go to four symphonies and six baseball games per month (point X). Then her budget constraint shifted to BC2, and she chose to go to five symphonies and three ballgames per month (point Y). ? 10 X 6 BALLGAMES 3 BC BCBALLGA E 3 O BC, BC 1 4 5 8 10 SYMPHONIES Of the following choices, which could have shifted Neha's budget constraint from BC1 to BC2? Check all that apply. O Her income increased while the prices of baseball and symphony tickets stayed the same. The prices of both baseball and symphony tickets increased while her income stayed the same. O Her income decreased while the prices of baseball and symphony tickets stayed the same. The prices of both baseball and symphony tickets decreased while her income stayed the same. goods and symphonies Based on Neha's consumption of ballgames and symphonies after her budget constraint shifted, ballgames are are goods.Q. Search this course Homework (Ch 21) X Edison and Hilary are two friends living in Chicago who love to try different restaurants in their city, but have specific preferences regarding venues for certain meals. In particular, they like to eat out at upscale gastropubs for dinner and diners for brunch. On the following diagram, the purple curves and 12 represent two of their indifference curves for upscale dinners and diner brunches. Assume that the friends have a monthly budget of $1,000 available to spend on going out to eat, and further, that the price of a diner brunch is always $10. Each labeled point represents tangency between a budget constraint and the corresponding indifference curve. ? Z 70 X 50 DINER BRUNCHES 30DINER 30 0 BC H BC 2 5 6 8 UPSCALE DINNERS The initial budget constraint (BC1) shows the two friends' budget constraint when the price of an upscale dinner is $100. At this price, Edison and Hilary would choose to consume five upscale dinners. Suppose that the price of an upscale dinner decreases to $50, shifting their budget constraint to BC2, which represents a new relative price of five diner brunches per upscale dinner. (Hint: The blue line labeled H is parallel to BC2 and tangent to /, at point Y.) To maintain the level of happiness they experienced before the price decrease-that is, to consume at a point along the same indifference curve as they were on initially (/1 )-the income spent on upscale dinners and brunch at diners would now only have to be | $ .. However, in reality, rather than maintaining their original level of utility, the friends choose the optimal bundle along their new budget constraint. At this point, they are off than before the price change in upscale dinners.Suppose that the price of an upscale dinner decreases to $50, shifting their budget constraint to BC2, which represents a new relative price of five diner brunches per upscale dinner. (Hint: The blue line labeled H is parallel to BC2 and tangent to /; at point Y.) To maintain the level of happiness they experienced before the price decrease-that is, to consume at a point along the same indifference curve as they were on initially (/1 )-the income spent on upscale dinners and brunch at diners would now only have to be $ . However, in reality, rather than maintaining their original level of utility, the friends choose the optimal bundle along their new budget constraint. At this point, they are w off than before the price change in upscale dinners. On the following table, indicate which point movement represents the substitution effect and income effect for upscale dinners when the price decreases from $100 to $50. Then indicate the consumption change that results from each effect. Consumption Change Upscale Dinners Represented By... (Quantity of upscale dinners) Substitution Effect Income Effect v . Because of the change to Edison and In this case, the price decrease of upscale dinners causes the real income of the two friends to for the friends. Hilary's real income and the direction of the income effect, upscale dinners areHomework (Ch 21) Ginny recently moved to Miami, where they developed a taste for drinking Americanos and eating danishes. Assume throughout this problem that the price of an Americano is held constant at $3. On the following graph, the purple curves (/] and /2) describe two of Ginny's indifference curves. The lines BC, and BC2 represent two budget constraints. Points X and Y show Ginny's optimal consumption bundles subject to the budget constraints. A-2 E ? 20 K 18 16 14 12 10 AMERICANOS No BC BC,N BC, BC , 0 2 6 8 10 12 14 16 18 20 EI DANISHES Given the preceding graph and knowing the price of an Americano is $3, Ginny's available income for Americanos and danishes is $ Using the income amount you just computed, complete the following table by finding the price of a danish when BC, represents Ginny's budget constraint and when BC2 represents her budget constraint. Then indicate the quantity of danishes consumed in each of those scenarios. Price Consumption (Danishes) When Ginny's budget constraint is... (Dollars per danish) BC BC2 LAG ONgraph. Given the price-quantity combinations from the preceding table, use the blue line (circle symbol) to plot Ginny's demand for danishes on the following X Hint: Assume that Ginny's demand for danishes is a straight line. You should derive two points on the demand curve from the preceding graph. Then place the blue line on the following graph so that it passes through these two points. A-Z 10 O Demand PRICE (Dollars per danish) N - 0 6 8 10 12 14 16 18 20 QUANTITY (Danishes)X Lainey has 80 hours per week that she can devote to time spent working or on leisure activities. Assume that Lainey is paid by the hour, and that her job will always allow her to work as many hours as she chooses. The following graph presents Lainey's weekly leisure-income tradeoff. The three lines labeled BC1, BC2, and BC show her time allocation budget at three different hourly wage levels. The given points A, B, and C represent her optimal time allocation choices along each of these constraints. A- BC 2 1200 BC 2 800 INCOME (Dollars) B BC, 400Homework (Ch 21) Q. Search this course X E 35 40 45 LEISURE (Hours) For each listed point, use the preceding graph to complete the following table by indicating the hourly wage as well as the number of hours per week Lainey will spend on labor and leisure. Wage Leisure Labor Point (Dollars per hour) ( Hours) (Hours) A B C Based on the data you entered in the preceding table, use the orange curve (square symbols) to plot Lainey's labor supply curve on the following graph, showing how much labor she supplies each week at each of the three wages.Homework (Ch 21) (? X Labor Supply EI WAGE (Dollars per hour) 00 N 0 5 10 15 20 25 30 35 40 45 50 55 60 LABOR (Hours) Suppose that Lainey's initial budget line was BC, and that it then changed to BC2; therefore, Lainey's optimal time allocation choice shifted from A to B. As a result of this change, Lainey's opportunity cost of leisure , and she chose to consume _ leisure. Consequently, in this region, the effect dominates the effect. The corresponding portion of Lainey's labor supply curve is stv zoom AHomework (Ch 21) X Andrew is a post doctoral fellow who teaches particle physics at a university where he earns an annual salary of $80,000. He intends to take the next year off to focus on writing a new undergraduate physics textbook, so he will not earn any income next year. He is currently deciding how much of this year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next E year. Therefore, next year Andrew will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year. A-Z The following graph shows Andrew's preferences for consumption this year and next year. Suppose initially Andrew cannot earn Interest on the money he saves. EI Use the green line (triangle symbol) to plot Andrew's budget constraint (BC1) on the following graph. Then use the black point (plus symbol) to show his optimum consumption bundle. Note: Dashed drop lines will automatically extend to both axes. (?) 120 A 110 100 BC, (0% Interest) . + 8 8 NEXT YEAR (Thousands of dollars) Initial Optimum (0% Interest) C+ O 8 50 BC, (50% Interest)Homework (Ch 21) Q Search this course Note: Dashed drop lines will automatically extend to both axes. X ? E 120 110 A 100 BC, (0% Interest) 8 Initial Optimum (0% Interest) 8 8 O CONSUMPTION NEXT YEAR (Thousands of dollars 50 BC, (50% Interest) New Optimum (50% Interest) 8 10 0 0 10 20 30 40 60 70 80 90 100 110 120 CONSUMPTION THIS YEAR (Thousands of dollars) Now suppose Andrew can earn 50% real interest on any money he saves.Homework (Ch 21) Q. Search this course X Now suppose Andrew can earn 50% real interest on any money he saves. Use the blue line (circle symbol) to plot his new budget constraint (BC2) on the previous graph. Then use the grey point (star symbol) to plot his optimum consumption bundle at this interest rate. (Hint: To plot BC2, think about how much money Andrew would have next year if he saved his entire income this year.) Using the previous graph, complete the following table by indicating how much Andrew should save of his current income when he cannot earn any interest on his savings and when he can earn 50% interest on his savings. Interest Rate Amount Andrew Saves (Percent) (Dollars) 50 Which of the following statements is a good description of the results of this exercise, as well as its implications for broader consumer behavior? All consumers, including Andrew, save less money when interest rates are high, because they don't need to save as much money to have the same future income. All consumers, including Andrew, save more money when interest rates are high, because they get a higher return on that investment. In this case, Andrew saves less money when interest rates are high. However, consumers with different preferences might save moreHomework (Ch 21) X Use the blue line (circle symbol) to plot his new budget constraint (BC2) on the previous graph. Then use the grey point (star symbol) to plot his optimum consumption bundle at this interest rate. (Hint: To plot BC2, think about how much money Andrew would have next year if he saved his entire income this year.) E A-Z Using the previous graph, complete tire following table by indicating how much Andrew should save of his current income when he cannot earn any interest on his savings and when he can earn 50% interest on his savings. Interest Rate Amount Andrew Saves (Percent) (Dollars) 0 50 Which of the following statements is a good description of the results of this exercise, as well as its implications for broader consumer behavior? All consumers, including Andrew, save less money when interest rates are high, because they don't need to save as much money to have the same future income. All consumers, including Andrew, save more money when interest rates are high, because they get a higher return on that investment. In this case, Andrew saves less money when interest rates are high. However, consumers with different preferences might save more money when interest rates are high. In this case, Andrew saves more money when interest rates are high. However, consumers with different preferences might save less money when interest rates are high