Why Do Incomes Differ? Preparing to Teach HS Economics 2014.
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Transcript of Why Do Incomes Differ? Preparing to Teach HS Economics 2014.
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Why Do Incomes Differ?
Preparing to Teach HS Economics2014
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Wages are determined in the factor (resource) market
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Like other prices, wages are set by supply and demand
Wage
Quantity
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Weq
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Wage
Quantity
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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
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Quantity
WageSL
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Why does LeBron James get paid more than me?
WageSL
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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
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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?
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Income distribution can be measured by quintiles
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Income distribution can be measured by a Lorenz Curve
www.worldbank.org
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Many interactive graphics and videos demonstrate income and wealth inequality
The L-CurveWealth Inequality in America
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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
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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
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Government in the *Circular Flow
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Environmental Quality at Discount Prices, Economics and the Environment
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