ECON 1101- Income Inequality

Economic Principles:
- Opportunity Cost: The cost of forgoing the next best alternative when making a decision.
- Trade-offs: The alternatives we give up when we make a choice.
- Scarcity of Resources: Limited availability of resources relative to the limitless wants of consumers.
Perfectly Competitive Market Model:
- Characterized by many consumers and many producers.
- Assumes no individual impact on the market (price takers).
- Perfect information among consumers and producers.
- Example product: homogeneous goods such as wheat or coffee.
Invisible Hand: A metaphor introduced by Adam Smith that suggests free markets lead to optimal resource allocation without need for intervention.
- Leads to maximizing economic surplus.

Markets do not guarantee:
- Universal access to housing.
- Employment for all, regardless of effort.
Recognition of market shortcomings highlights the need for government intervention in areas like equity, health, and public welfare.

Equity Issues: Government policies are necessary to address socio-economic disparities:
- Potential policies include quotas, price ceilings, and taxes aimed at reducing consumption of harmful products.
- Concern for public health and its costs to society.
Such policies may lead to deadweight loss (a loss of economic efficiency that can occur when equilibrium for goods or services is not achieved).

Discussion on inefficiencies often arising from:
- Lack of perfect competition (e.g., monopolies, oligopolies).
- Examples of market power: oil companies, telecommunications, grocery chains.
- The presence of externalities (both positive and negative).
- Pollution as a key concern leading to market inefficiencies and overall societal costs.
When implementing policies, the goal is often to restore efficiency while considering the consequences of market intervention.

Chapters 14 and 15 will focus on different forms of market power like monopoly and oligopoly.
- Requires understanding of cost structures and profit models in competitive environments.
Imperfect Information:
- Example: The used car market; consumers often lack crucial information, impacting pricing decisions.
Game Theory:
- Application in oligopolistic markets where the actions of one firm significantly impact others.

Discussion on happiness as a measure, and its factors:
- Critical components affecting happiness: social connections (family/friends), health (including sleep), and income.
- Happiness is often reported higher in certain countries.
World Happiness Rankings (2024):
- Top 4: Finland, Denmark, Iceland, Sweden.
- Canada ranked 15th, indicating stable but declining satisfaction metrics.

Affordable Housing Crisis:
- Previously at a first home purchase age of 30, now pushing to 40 or beyond.
Healthcare System Strains:
- Current healthcare wait times are taking a toll on public satisfaction.
Rising Costs of Groceries:
- Inflation effects continuing to impact affordability.
Employment Dynamics:
- Job competition remains high while wages stagnate.
- Impact of high immigration levels on public service capacity.

Poll conducted on perceived income distribution and societal views on luck vs. hard work as determinants of success:
- Participants reflected a mix of belief on the influence of luck.
Potential link between views on social mobility and opinions on income redistribution:
- Those who believe luck plays a significant part often advocate for larger redistribution policies.

Discussion followed on the prevailing inequality:
- Using quintrile measures to illustrate income distribution in the population.
- The lowest income quintile earns approximately 4.2% of total income in Canada.
- The richest quintile earns roughly 47%.
Lorenz Curve and Gini Coefficient:
- Tools used to graphically represent and measure income inequality.
- The greater the deviation from the line of perfect equality, the higher the Gini coefficient and hence, the more unequal the society.

The relevance of understanding both absolute and relative poverty metrics is emphasized before policy-making.
Discussion of potential resilience, such as achieving greater coordination among social policies to tackle inequality effectively and sustainably.
Encouragement of continued engagement with current literature and media on economics and happiness.

The next lecture will focus on applications and exercises involving Lorenz curve interpretation and market power calculations.
Students are encouraged to prepare thoroughly and access additional resources shared on Brightspace.