- 1 -

University of Colorado

Department of Economics

Economics 4626 Answers, Second Midterm Examination

Prof. Jeffrey S. Zax 10 April 2008

1a. (4 points out of 4) These conclusions are similar to Cutler, et al. Cutler, Glaeser, and

Shapiro argued that mass food preparation is the primary cause of Americans becoming

more obese, rather than changes in voluntary or work related energy expeditures. Mass

food preparation is driven by technological innovations, a shift to centralized production,

and result in lower food prices. Cutler, et al. argued that overall, the change is positive for

society, though those w/ poor self-control are negatively affected.

1b. ( points out of 4) When food prices decline, the ceteris paribus value of income increases.

This effective increase in the real income will increase the demand for food, because it is

a normal good. This reinforces the demand for food as food prices decline. Food is a

normal good, therefore as price goes down, more will be demanded, and as income goes

up, more will be demanded.

1c. (5 points out of 5) If the price of processed food declines, it may actually cancel out one

benefit of multiple-person housholds, returns to scale. Previously, it may be cheaper to

cook a whole meal for the entire household. However, if processed foods become cheap

enough, everyone may just buy microwavable chicken pot pies for themselves. This may

result in a decrease in incentive to form a household (to varying degrees) and implies that

the equivalence scales for adding an additional person will be less beneficial (they will

increase).

1d. (3 points out of 3) If the price of processed food declines nothing happens to the official

rate of poverty in the US because it is measured off of income rather than consumption.

The rate at which people actually experience material deprivation will decrease because

poor people can now afford to consume more at their given level of income.

2a. (3 points out of 3) Yes. When the real minimum wage is lowered, people who were

previously not worth min. wage become worth it. While these people work, they earn

very low wages, which would increase the P90/P10 ratio and inequality increases.

However, if the minimum wage (in real terms) didn't fall, these people would not work

and wouldn't be included in the income distribution.

2b. (4 points out of 4) A reduction in the real min. wage would result in the consumption

inequality decreasing. The reduction in the min. wage will result in more people earning

an income. With more income, these people's permanent income will increase causing

their consumption to increase. An increase of poor people's consumption will decrease

consumption inequality. But if these people were previously excluded, then cousumption

inequality would increase as there are more consumption poor.

Partial preview of the text

Download The Economics of Inequality and Discrimination - Exam 2 Solutions | ECON 4626 and more Exams Economics in PDF only on Docsity!

University of Colorado Department of Economics

Economics 4626 Answers, Second Midterm Examination Prof. Jeffrey S. Zax 10 April 2008

1a. (4 points out of 4) These conclusions are similar to Cutler, et al. Cutler, Glaeser, and Shapiro argued that mass food preparation is the primary cause of Americans becoming more obese, rather than changes in voluntary or work related energy expeditures. Mass food preparation is driven by technological innovations, a shift to centralized production, and result in lower food prices. Cutler, et al. argued that overall, the change is positive for society, though those w/ poor self-control are negatively affected.

1b. ( points out of 4) When food prices decline, the ceteris paribus value of income increases. This effective increase in the real income will increase the demand for food, because it is a normal good. This reinforces the demand for food as food prices decline. Food is a normal good, therefore as price goes down, more will be demanded, and as income goes up, more will be demanded.

1c. (5 points out of 5) If the price of processed food declines, it may actually cancel out one benefit of multiple-person housholds, returns to scale. Previously, it may be cheaper to cook a whole meal for the entire household. However, if processed foods become cheap enough, everyone may just buy microwavable chicken pot pies for themselves. This may result in a decrease in incentive to form a household (to varying degrees) and implies that the equivalence scales for adding an additional person will be less beneficial (they will increase).

1d. (3 points out of 3) If the price of processed food declines nothing happens to the official rate of poverty in the US because it is measured off of income rather than consumption. The rate at which people actually experience material deprivation will decrease because poor people can now afford to consume more at their given level of income. 2a. (3 points out of 3) Yes. When the real minimum wage is lowered, people who were previously not worth min. wage become worth it. While these people work, they earn very low wages, which would increase the P90/P10 ratio and inequality increases. However, if the minimum wage (in real terms) didn't fall, these people would not work and wouldn't be included in the income distribution.

2b. (4 points out of 4) A reduction in the real min. wage would result in the consumption inequality decreasing. The reduction in the min. wage will result in more people earning an income. With more income, these people's permanent income will increase causing their consumption to increase. An increase of poor people's consumption will decrease consumption inequality. But if these people were previously excluded, then cousumption inequality would increase as there are more consumption poor.

2c. (3 points out of 3) Different ways. A reduction in real min wage increases wage inequality and decreases consumption inequality. It makes sense because more people are counted as having a wage though it is lower than those in the workforce before and proportionatly. However, now more people can consume. The newly employed now earn money to consume.

3a. (4 points out of 4) Parental characteristics influence the level of investments in human and health capital. Wealthier parents can afford to invest more in their children. Poor families tend to invest more in their first children. Social status, environment, bequest, intervivos, genetics and ability transmission are also ways in which parental characteristics affect children's welfare.

3b. (5 points out of 5) If parents were to not feel able to pass on any positive economic benefits, they would be encouraged not to invest in their children's education, health, or other forms of human capital. Barring the natuarl emotional ties parents feel with regards to their children, a level playing field would make children less of aplace for parents to invest (especially in their own) and parental behaviors might include greater parental consumption or parent-related activities, and less saving in order to give opportunities or bequests to children. The disincentives for education and health for children could be disastrous, especially considering the already high rates of child poverty in the U.S. today.

4a. (3 points out of 3) In areas with more elderly, there may be less resources available in public schools, as the frequent-voting elderly would lobby to have more resources allocated to themselves. In younger communities, there would likely be more resources allocated to children. This is a "peer effect" because the child's economic welfare is affected by their peers, in this case, the elderly.

4b. (2 points out of 2) The variation in resources that affect the accumulation of human capital are overall uncertain according to Card & Kruger. However, they make a strong case that increases in resources have shown to make higher payouts of uman capital over time through their study of the North and South Carolin school systems. The schools with more resources tended to produce higher rates of graduation, income and lower delinquency rates than those without higher resources. However, in the end they felt uncertain as to exactly how much $ should be put towards school to guarantee increased returns.

The Economics of Inequality and Discrimination - Exam 2 Solutions | ECON 4626, Exams of Economics

Often downloaded together

Related documents

Partial preview of the text

Download The Economics of Inequality and Discrimination - Exam 2 Solutions | ECON 4626 and more Exams Economics in PDF only on Docsity!