why do incomes differ?
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Why Do Incomes Differ?. Preparing to Teach HS Economics 2014. Wages are determined in the factor (resource) market. Like other prices, wages are set by supply and demand. Wage. S L. W eq. D L. Q eq. Quantity. - PowerPoint PPT PresentationTRANSCRIPT
Why Do Incomes Differ?
Preparing to Teach HS Economics2014
Wages are determined in the factor (resource) market
Like other prices, wages are set by supply and demand
Wage
Quantity
SL
DL
Weq
Qeq
Wage
Quantity
SL
DL
Weq
Qeq
Supply of labor is determined by the workers’ opportunity cost, as well as skills and abilities
Demand for labor is determined by the price of the product and the productivity of the worker
Quantity
WageSL
DL
Weq
Qeq
Why does LeBron James get paid more than me?
WageSL
DL
Weq
Qeq
Lesson 13, Who Decides Wage Rates?National Occupational Employment and
Wage Estimates (2012)Retail salesperson: $25,310Medical secretary: $32,670
Firefighter: $47,850Electrician: $53,030
Secondary school teacher: $57,710Police officer: $57,770
Insurance sales agent: $63,400Registered nurse: $67,930
Pharmacist: $114,950Computer and information systems manager: $129,130
Anesthesiologist: $232,830Source: http://www.bls.gov/oes/current/oes_nat.htm
Lesson 13 - Debriefing
• What is a labor market?• Who represents supply, and who represents
demand in a labor market?• What is derived demand?• How are wages linked to the prices paid for goods
and services?• How is productivity linked towages?• Why do surgeons earn higher salaries than retail
salespeople?
Income distribution can be measured by quintiles
Income distribution can be measured by a Lorenz Curve
www.worldbank.org
Many interactive graphics and videos demonstrate income and wealth inequality
The L-CurveWealth Inequality in America
Why does income distribution matter?
• Income distribution affects allocation decisions (whose utility matters?)
• Income distribution affect the achievement gap, thus social mobility
• Income distribution affects political decisions– Tax policy– Provision of public goods– Collaboration v. dissension
What is the government’s role?In a market economy, the government must:• Establish property rights• Protect borders/national defenseIn the U.S. economy, the government has additional economic roles:• Provision of public goods• Protection of common resources• Taxes/regulations/subsidies to address externalities• Consumer protection and information• Trust and anti-trust provisions• Safety net/income redistribution• Economic stability
Government in the *Circular Flow
Environmental Quality at Discount Prices, Economics and the Environment