Market Failure and the Role of Government

Flashcards covering key concepts of market failure and the role of government in addressing income inequality.

Income Inequality

A market failure that is controversial with differing opinions on its significance to the economy.

Lorenz Curve

A graph that shows how income or wealth is distributed in a society, used to measure income inequality.

Gini Coefficient

A statistical measurement of income distribution, where 0 indicates perfect equality and 1 indicates perfect inequality.

Progressive Tax

A tax system that takes a larger percentage of income from high-income groups.

Proportional Tax

A flat tax system taking the same percentage of income from all income groups.

Regressive Tax

A tax system that takes a larger percentage from low-income groups.

Quintiles

Five equal groups used to divide income-earning families for income distribution analysis.

Palma Ratio

An alternative measure of inequality not typically included in the AP exam.

Income Distribution

The way in which income is shared among members of a society.

Market Failure

A situation where the allocation of goods and services is not efficient, often leading to economic issues such as inequality.