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Focused topic practice

income inequality MCQs

Practise focused income inequality questions with marked answers for exam preparation and subject revision.

income inequality Mcqs
1. In a competitive labour market firms will hire labour up to the point where the marginal revenue product of labour equals ?
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A. the price of the product

B. the marginal product

C. total labour cost

D. the wage rate

2. Housing Benefit is a good example of ?
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A. a benefit in kind

B. a means tested cash benefit

C. none of the above

D. a universal (social insurance based) benefit

3. The total amount of tax you pay divided by your total income is the ?
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A. average tax rate

B. proportional tax rate

C. total tax rate

D. marginal tax rate

4. 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 ?
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A. Rs difference between the weekly salary he finally accepts and the Rs500 weekly salary that he has forgone

B. The Rs500 weekly salary that he has forgone and the monetary costs incurred by continuing to search

C. the Rs500 weekly salary that he has forgone to search for another job

D. Rs0, since he is currently unemployed

5. If output price is constant, the marginal revenue product of labour curve will have the same shape as the ?
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A. total variable cost curve

B. marginal product of labour curve

C. total product of labour curve

D. marginal cost curve

6. An example of an indirect tax is ?
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A. VAT

B. inheritance tax

C. income tax

D. a tax on profits.

7. Current anti-poverty programs discourage work because ?
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A. anti-poverty programs attract naturally lazy people to begin with.

B. 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.

C. they make recipients more comfortable than most middle-class citizens.

D. in order to be eligible for benefits a recipient cannot have a job

8. If the income effect is smaller than the substitution effect, higher net wages will ?
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A. reduce the supply of labour.

B. increase the demand for labour

C. increase the supply of labour

D. have no effect on the supply of labour

9. Permanent income is ?
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A. equal to the minimum wage

B. none of these answers

C. Social Security income of the elderly and disabled

D. wages fixed by a union or other labour contract

E. a persons normal or average income
10. Supply of land in a given use ?
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A. will be upward sloping because as land becomes more valuable in once use, the amount of land made available for that use will increase

B. will be perfectly inelastic in the long run. but upward sloping in the short run

C. is perfectly elastic since there is fixed amount of land

D. is perfectly inelastic since there is a fixed amount of land

11. A tax whose burden is the same proportion of income for all households is ?
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A. an equal tax

B. a regressive tax

C. a proportional tax

D. a progressive tax

12. New technology in the form of computer spreadsheets has increased the productivity of accountants. This will cause ?
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A. firms to move up their demand curves for accountants

B. firms to move down their demand curves for accountants

C. 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.

D. the demand curve for accountants to shift to the right, since the productivity of accountants has increased
13. Because peoples income vary other the life cycle and because there are transitory shocks to peoples incomes the standard measures of income distribution ?
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A. understate the inequality of living standards

B. exaggerate the inequality of living standards

C. could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative

D. accurately represent the true inequality of living standards

14. Tax incidence is the ?
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A. structure of the tax.

B. ultimate distribution of a taxs burden

C. behaviour of shifting the tax to another party

D. measure of the impact the tax has on employment and output

15. A tax whose burden expressed as a percentage of income, falls as income increases is a ?
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A. benefits received tax

B. progressive tax

C. regressive tax

D. proportional tax

16. VAT is a good example of which kind of tax ?
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A. Ad valorem

B. specific

C. Excise duty

D. Direct

17. Differences in wages that result from differences in working conditions are known as ?
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A. compensating differentials

B. occupational differentials

C. job differentials.

D. search differentials

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

B. 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

C. allowing each individual to maximize their own utility without interference from the government

D. istributing income from rich to poor because this would maximize the well-being of the worst-off person in society

19. Unemployment benefits may increase the unemployment rate because unemployment benefits ?
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A. encourage people to quit their jobs

B. reduce the cost of job search

C. reduce the benefits of additional job searching

D. enable people to quit searching for work

20. The substitution effect of higher wages suggests that as the wage rate increases ?
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A. leisure becomes less expensive and households buy less of it.

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

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

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

21. If labour market discrimination crowds women into a limited number of occupations so that the number of occupations available to men increases, then ?
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A. wages of men will be higher but the marginal productivity of men will be lower than it otherwise would be

B. the wages of men will be lower but the marginal productivity of men will be higher than it otherwise would be

C. both the wages and the marginal productivity of men will be lower than they otherwise would be

D. both the wages and the marginal productivity of men will be higher than they otherwise would be
22. A Gini coefficient of one means that ?
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A. one family has all the income and every one else has nothing.

B. income is distributed equally

C. all the income is received by the top 20% of the income distribution

D. the income is split equally between the top 20% and the rest of the distribution.

23. Where a tax can be shifted the incidence depends on ?
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A. how many producers there are:

B. whether there is perfect or imperfect information

C. who is legally obliged to pay the tax

D. elasticities of demand and supply
24. The idea that the demand for car workers stems from the demand for cars is ?
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A. indirect demand

B. the value of the marginal product of auto workers.

C. derived demand

D. output demand

25. The term rent as it is used by economists. refers to ?
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A. the amount paid each year by a tenant for an apartment

B. the return to any factor of production that is in fixed supply

C. any profit earned by stockholders when they sell their stock

D. the profit earned by the owner of any housing unit.

26. Rawlss suggestion that policy should be directed at maximizing the welfare of the least well off person in society is derived from ?
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A. 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.

B. 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

C. the idea that everyone in society should have an equal income

D. 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

27. The maximin criterion suggested by Rawlss theory of justice means that the government should aim to ?
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A. Maximize the total utility of society

B. maximize the economic freedom of individuals by minimizing government interference in private decision making

C. minimize the difference between the rich and poor

D. minimize the well-being of the best-off person in society

E. Maximize the well-being of the worst-off person in society
28. Assuming leisure is a normal good, if the income effect is greater than the substitution effect a wage increase ?
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A. will have no effect on labour supply

B. will increase labour supply.

C. will decreases labour supply

D. could cause either an increases or a decrease in labour supply

29. A period of unemployment due to recession will ?
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A. reduce a workers current income but not necessarily their permanent income

B. affect neither the current nor the permanent income of a worker

C. reduce a workers permanent income but not their current income

D. increase a workers current income and permanent income

30. The Gini coefficient is ?
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A. 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

B. the most common way of representing the income distribution graphically

C. a commonly used measure of the degree of inequity in an income distribution

D. a commonly used measure of the degree of inequality in an income distribution

31. Assuming that leisure is a normal good. if an individuals labour supply curve is backward bending then the ?
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A. income effect and the substitution effects are equal

B. income effect is zero

C. income effect outweighs the substitution effect

D. substitution effect outweighs the income effect

32. As the wage rate per hour increases, the opportunity cost of leisure ?
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A. decreases since the customer now has more income to spend

B. may increase of decrease depending on the individuals preferences.

C. remains constant

D. increases since the cost of forgoing one hour of work increases
33. An increase in the minimum wage will cause a relatively large increase in unemployment among ?
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A. unskilled workers if the demand for labour is relatively inelastic

B. unskilled workers if the demand for labour is relatively elastic

C. skilled workers if the demand for labour is relatively inelastic

D. skilled workers if the demand for labour is relatively elastic

34. Horizontal equity holds that ?
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A. those with equal ability to pay should bear equal tax burdens.

B. those who benefit the most from government services should have the greatest voice in determining what gets produced

C. those with equal ability to pay should bear unequal tax burdends.

D. those who benefits the most from government services should bear the higher tax burden.

35. Vertical equity holds that ?
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A. those with equal ability to pay should bear unequal burdens

B. those with greater ability to pay should pay more

C. those will equal ability to pay should bear equal tax burdens.

D. those who benefit the most from government service should bear the higher tax burden

36. Because in-kind transfers are not accounted for in standard measures of income distribution the standard measures of income distribution ?
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A. understate the inequality of living standards

B. accurately represent the true inequality of living standards

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

D. exaggerate the inequality of living standards
37. Rawlss miximin criterion does not mean that there should be redistribution so as to equalise everyones incomes in society because ?
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A. Such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair.

B. such redistribution would not maximize the total income of all members of society

C. such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust.

D. Such redistribution would remove the incentive to work hard, so societys 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.
38. The formula for the marginal revenue product of labour (L is for labour, X is the product) is ?
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A. MPL/PX

B. (MPL) (PX)

C. PX/MPL

D. MPL + PX

39. If people can borrow and lend to perfectly smooth out their lifetime living standards, then ?
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A. current annual income is a good measure of the distribution of living standards.

B. none of these answers

C. life-cycle income is a good measure of the distribution of living standards.

D. transitory income is a good measure of the distribution of living standards

E. permanent income is a good measure of the distribution of living standards.
40. The poverty trap refers to ?
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A. 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

B. 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

C. a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.

D. a situation in which workers are unable to find jobs.

41. In Pakistan the term the poverty trap is used to describe the fact that ?
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A. the Pakistan benefit system makes being poor vary degrading

B. if poor people earn more their benefits fall, making them no better off.

C. poor people are excluded from most leisure and social activities

D. in the Pakistan poor people are heavily taxed

42. Tax shifting ?
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A. occurs when taxes cause prices to increase but wages to fall.

B. occurs when households can alter their behaviour and do something to avoid paying tax

C. is the way in which a tax is structured

D. is the ultimate distribution of a taxs burden

43. 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 ?
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A. none of these answers

B. all of these answers

C. libertarianism

D. utilitarianism

44. The Benazir Benefit income Scheme is a good example of ?
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A. a universal (social insurance based) benefit

B. a benefit in kind.

C. none of the above

D. a means tested cash benefit

45. The marginal tax rate is ?
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A. your total income divided by the total amount of tax you pay.

B. the additional tax you pay divided by your total income

C. the tax rate you pay on any additional income that you earn.

D. the total amount of tax you pay divided by your total income

46. A progressive income tax means that those with a higher income pay ?
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A. the same percentage of their income in taxes as low income people all the taxes in the economy.

B. all the taxes in the economy

C. a lower percentage of their income in taxes than low income people

D. a higher percentage of their income in taxes then low income people
47. The greatest advantage of a negative income tax is that it ?
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A. reduces the cost to the government of fighting poverty

B. would not provide benefits to lazy people

C. generates a smaller disincentive to work than most alternative anti-poverty policies.

D. ensures that the poor actually receive what the government thinks they need does all these answers.

48. Constrained choice is relevant for households ?
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A. making spending decision but not labour-supply decision.

B. making both spending and labour-supply decisions

C. considered to be poor but not for those who are considered to be rich

D. making labour-supply decisions but not spending decisions.

49. The stock of knowledge, skills and talents that people possess is called ?
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A. training investment

B. human capital

C. skill capital

D. skill-building investment

50. The marginal revenue product of labour is ?
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A. the additional revenue a firm earns by employing on additional unit of labour

B. the additional revenue the firm makes by selling one unit of labour.

C. the additional profit a firms earns by employing one additional unit of labour

D. the marginal product of capital times the price of labour.