Sub: Economics Topic: International Trade
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
The Distribution of Income
In 2004 the median household income in the United States was $48,201 half of households earnedmore income and half earned less. There is substantial variation in household income, with somehouseholds earning much more and others earning much less. Income can be measured in differentways, and two income measures are relevant for our discussion.
is defined as all earnings received from labor and capital markets. It includeswages and salaries, as well as earnings from bonds, stocks, and real estate.
equals market income, plus government transfers, minus taxes paid. Thetransfers include income supplements, Social Security payments, food stamps, and housingassistance. The taxes include state and federal income and payroll taxes, as well as localproperty taxes.Three key factors explain these substantial differences in market income:
Differences in labor skills and effort.
Some people have better labor skills more human capitalthan others, so they earn higher wages. Labor skills are determined by innate ability andeducation. In addition, some people work longer hours or at more demanding jobs, so theyearn more income.
Luck and misfortune.
Some people are luckier than others in investing their money, starting abusiness, or picking an occupation. Among the unlucky people are those who develop healthproblems that make it difficult to earn income. Among the lucky people are those who inheritwealth and earn income by investing their inheritance.
Some people are paid lower wages or have limited opportunities for educationand work because of their race or gender.