Understanding Income Inequality and Economic Principles

Income Inequality

Disparity in income distribution among individuals.

Top 1% Income Share

Top 1% earn 21% of total U.S. income.

Wealth Inequality

Disparity in wealth distribution; wealthiest hold 40%.

Intergenerational Mobility

Ability of children to earn like parents.

Poverty Rate

Approx. 12% of U.S. population below poverty line.

Poverty Line

Income threshold for basic life necessities.

Absolute Poverty

Fixed income cutoff for basic living standards.

Relative Poverty

Resources measured against societal median income.

Long-term Poverty

Median duration exceeds 8 years for many poor.

Safety Net Programs

Government programs aimed at reducing poverty.

Equity-Efficiency Trade-off

Balancing equitable outcomes with economic efficiency.

Diminishing Marginal Utility

Decreasing satisfaction from additional income received.

Social Insurance Programs

Government-funded insurance based on contribution records.

Adverse Selection

Riskier individuals more likely to purchase insurance.

Moral Hazard

Riskier behavior due to insurance coverage.

Cost Benefit Principle

Act if benefits outweigh costs.

Opportunity Cost

Value of the next best alternative forgone.

Sunk Costs

Costs already incurred, irrelevant for future decisions.

Marginal Principle

Evaluate the impact of one additional unit.

Economic Surplus

Total benefits minus total costs; ≥ 0.

Law of Demand

Higher quantity demanded at lower prices.

Demand Curve

Graph showing relationship between price and quantity demanded.

Normal Good

Higher income leads to increased consumption.

Inferior Good

Higher income leads to decreased consumption.

Intensive Margin

Adjusting quantity based on existing purchases.

Extensive Margin

Starting purchases at new price levels.

Demand Curve Shift

Change in demand due to external factors.

Marginal Benefit

Benefit from consuming one additional unit.

Marginal Cost

Cost of producing one additional unit.