Scot Wick Blog

  Government Taxation Causes A Deadweight Loss For The Economy … Figure 1: For the economy, maximization of total consumer + producer surplus is the goal Consumer surplus (satisfaction) is the price consumers are willing to pay for a good minus the price they actually pay for it . Producer surplus (profit) is the price producers receive for a good minus their costs of producing that good. In Figure 1, maximum total surplus is at equilibrium E. … Figure 2: Pre-tax total surplus = consumer surplus (A + B + C) + supplier surplus (D + E + F). Government needs tax revenues, but taxation creates deadweight loss. Government tax revenue = B + D Consumer and producer surplus reduced to A and F Deadweight loss caused by taxation = C + E … Figure 3: Example of deadweight loss. Consumer surplus: Joe values a pizza at $8, the maximum he would pay for a pizza. Jane values pizza at $6. The pre-tax price of pizza is $5, so both Joe and Jane will buy one. J...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 11 of 20 … We have discussed how the economy's income is distributed and some of the problems in interpreting measured inequality. This discussion was positive in the sense it described the world as it is. We now address a normative question facing policymakers - what should government do about economic inequality? Views on this question are largely a matter of political philosophy. Three prominent schools of thought in political philosophy are: · utilitarianism · liberalism · libertarianism … Utilitarianism The founders of utilitarianism are the English philosophers Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873). The starting point of utilitarianism is the notion of utility - the level of happiness, satisfaction, well-being a person attains. … Utilitarians hold utility should be the ultimate objective o...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 10 of 20 … What to Make of Rising Inequality (This article here in chapter) An economist offers his perspective on the rise in U.S. income inequality. What the Numbers Don't Tell Us - Tyler Cowen, New York Times The growing inequality in wealth and income has led many people to question whether the contemporary American economy is rigged in favor of the rich. While there is little doubt the gap between the wealthy and everybody else has widened in recent years, the situation is not as unfair as some of the numbers seem to imply. … Much of the measured growth in income inequality has resulted from natural demographic trends. In general, there is more income inequality among older populations than among younger populations, if only because older people have had more time to experience rising or falling fortunes. More-edu...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 9 of 20 … In the U.S. economy, economic mobility, movement of people among different income classes, is substantial. Movements up and down the income ladder is due to many factors including hard work, education amount, good luck, and disinterest. … Because of mobility, many are only temporarily below the poverty line. Poverty is a long-term problem for relatively few families. In a typical ten-year period, about one fourth of families fall below the poverty line for a year or more. Fewer than three percent of families are poor for eight or more years. … Another way to gauge economic mobility is the continuance of economic success from generation to generation in a family. Economists have found having an above-average income tends to carry over from parents to children, but often not. If a father earns 20% above his ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 8 of 20 … A study of 2006 data by Michael Cox and Richard Alm shows how different inequality measures generate very different results They compared American households in the top fifth of income distribution to those of the bottom fifth. They found for U.S. households · the richest fifth has an average income of $149,963 · the poorest fifth has an average income of $9,974 · the top group has about 15 times more income than the bottom group … When accounting for taxes paid, the gap shrinks somewhat because the tax system is progressive, meaning the higher the income the higher percentage tax paid on it. The top group pays a higher percentage of income in taxes After taxes, the richest fifth has 14 times more net income than the poorest fifth. … Looking at consumption rather than income the gap shrinks substantially. T...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 7 of 20 … Evaluations of income distribution often give an incomplete view of inequality because these three are not considered: 1· in-kind transfers 2· economic life cycle 3· transitory versus permanent income … 3· Transitory (not permanent) versus permanent income Incomes vary over people's lives because of · predictable life cycle variation · random and transitory forces Transitory: For example, if this year there is frost damage to oranges in Florida, it · causes Florida orange growers’ incomes to fall temporarily · drives up orange prices nationwide · causes California orange growers’ incomes to rise temporarily However, next year the situation could reverse. … Permanent: A family's ability to buy goods depends mainly on its more predictable permanent income, which is its normal, or average, income. To measu...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 6 of 20 … Evaluations of income distribution often give an incomplete view of inequality because these three are not considered: 1· in-kind transfers 2· economic life cycle 3· transitory versus permanent income … 1· In-kind transfers, received mostly by the poorest members of society are transfers to the poor of goods and services rather than cash. Through government programs the poor receive many nonmonetary items including housing vouchers, Supplemental Nutrition Assistance Program (“food stamps”), and medical services. According to a Census Bureau study if in-kind transfers were included in income at market value the number of families in poverty would be about 10% lower than standard data indicate. 2· Economic life cycle Incomes vary over people's lives, typically income · for a young worker is low · rises as the...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 5 of 20 … Figure 2 – The Poverty Rate The poverty rate shows the percentage of the U.S. population with incomes below a government-designated level called the poverty line. … The poverty rate is commonly used to gauge income distribution. The poverty rate is the percentage of the population whose family income falls below a designated level called the poverty line. The poverty line is set by the federal government at about three times the cost of food for a family for an adequate diet. In 2005 / (2024 – added) · the median family had an income of $56,194 / $83,730 · the poverty line for a family of four was $19,971 / $32,150 · the poverty rate was 12.6 percent / 12.9 percent … Figure 2 shows the poverty rate since 1959, at the beginning of collection of official data. The poverty rate fell from 22.4 percent in 1959 ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 6 The Economics of Labor Markets Chapter 20 of 36 Income Inequality and Poverty Section 4 of 20 … Figure 1 - Inequality around the World This figure shows a measure of inequality · the income (or expenditure) that goes to the richest 10% of the population · divided by the income (or expenditure) that goes to the poorest 10% Among these nations · Japan and Germany have the most equal distribution · South Africa and Brazil have the least equal distribution Table A shows GDP per capita estimates. … Countries collect income data in different ways, including · on individual incomes · on family incomes · on expenditure rather than income So, whenever data shows an income difference between two countries we can never be sure whether it reflects an accurate measure of income differences or just a difference in data collection. … Figure 1 shows a comparison of inequality in twelve countries. The inequality measu...

  The Economic Success Story of Hong Kong ChatGPT: From Harbor to Global Hub Few places in modern history have transformed as dramatically as Hong Kong. In 1950 it was a war-scarred, resource-poor colony of 2 million people. By the late 20th century it had become one of the world’s most prosperous and efficient economies—a financial and trading hub linking East and West. Hong Kong’s rise did not rest on natural resources, but on free markets, open trade, and the rule of law. Its growth stands as a case study in how economic freedom can lift living standards rapidly. … Colonial Foundations and Post-War Rebuilding Under British rule after 1842, Hong Kong was primarily a port for trade with China. Its advantage lay in geography—a deep natural harbor at the mouth of the Pearl River—and in British institutions such as contract law and an impartial judiciary. After World War II and the Chinese Revolution leading to communist rule in 1949 hundreds of thousands of entrepreneurs and skilled...