Income Inequality and the Tax System

INTRODUCTION

Today we will study the concept of income inequality and how the tax system is used to alleviate the problems caused by it. Click these links to download PowerPoint presentations on the topic (Chapter 12 Notes Page and Chapter 20 Notes Page). Also reading the information on this link will help you understand more clearly why some economists believe that income inequality is a form of market failure.

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Learning Target

• • Analyze the ways in which incentives influence what is produced and distributed in a market system.

  • Evaluate the extent to which competition among sellers and among buyers exists in specific markets.

  • Describe the consequences of competition in specific markets.

Criteria for Success

• I will be able to use ideas related to market equilibrium and elasticities to analyze economic problems.

• I will be able to demonstrate this understanding using a graph of the aforementioned model.

HOMEWORK

Assignments

Read Krugman (Module 78) and watch the following videos. The text isn't great for these topics. Make sure to watch the videos.

• The Lorenz Curve

• Quantifying Income Inequality Part 1 (The Gini Coefficient)

• Quantifying the Income Inequality Part 2 (The 20/20 Ratio)

ASSESSMENTS AND ACTIVITIES

Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.

Problem of the Day: Work cooperatively with another AP Economics student to construct a response to the following prompt. Complete the response in your notebook, NOTING WITH WHOM YOU WORKED.

1. Draw three Lorenz Curve diagrams:

   • The first diagram should show a country in which there is no income inequality. What would the Gini coefficient be in this country?

   • The second diagram should show a country in which there is a high degree of income inequality but not perfect inequality. What might the Gini coefficient be in this country?

   • The third diagram should show a country in which there is some income inequality but less than the country in (2). What might the Gini coefficient be in this country?

2. Explain why income inequality is considered a market failure by some economists. This link may help.