Use a pizza pie analogy to discuss the trade off between income equality and economic efficiency
What will be an ideal response?
The total pie represents total income. Each pizza slice represents the income going to each person based on the person’s contribution to income. Now if there is redistribution, then the size of a slice will be changed. Those who contribute more will now have a smaller size and those who contribute less will now have a large slice. The question is what happens to people’s motivation to contribute. If the redistribution of income causes people who contribute more to now contribute less because of reduced incentives to work, save and invest, then there can be an efficiency loss for society. In this case, the size of the pie will shrink. Society has to decide how much of a loss in income it will allow to achieve the objective of redistributing income.
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Consider the market for cellular phones. Which of the following shifts the demand curve leftward?
A) studies showing using cellular phones can cause brain cancer B) a decrease in the price of cellular phones C) a decrease in the quantity demanded of cellular phones D) an increase in the services provided by cellular phones, such as text messaging E) an increase in the price of cellular phones
Tariffs are NOT defended on the grounds that they
A) improve the terms of trade of foreign nations. B) protect jobs and reduce unemployment. C) promote growth and development of young industries. D) prevent over-dependence of a country on only a few industries. E) protect domestic producers from foreign low prices.