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Why Do Incomes Differ?

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.

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Why Do Incomes Differ?

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  1. Why Do Incomes Differ? Preparing to Teach HS Economics 2014

  2. Wages are determined in the factor (resource) market

  3. Like other prices, wages are set by supply and demand Wage SL Weq DL Qeq Quantity

  4. Supply of labor is determined by the workers’ opportunity cost, as well as skills and abilities Wage SL Weq Demand for labor is determined by the price of the product and the productivity of the worker DL Qeq Quantity

  5. Why does LeBron James get paid more than me? Wage Wage SL SL Weq Weq DL DL Qeq Qeq Quantity

  6. Lesson 13, Who Decides Wage Rates? • National Occupational Employment and Wage Estimates (2012) Retail salesperson: $25,310 Medical secretary: $32,670 Firefighter: $47,850 Electrician: $53,030 Secondary school teacher: $57,710 Police officer: $57,770 Insurance sales agent: $63,400 Registered nurse: $67,930 Pharmacist: $114,950 Computer and information systems manager: $129,130 Anesthesiologist: $232,830 Source: http://www.bls.gov/oes/current/oes_nat.htm

  7. 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?

  8. Income distribution can be measured by quintiles

  9. Income distribution can be measured by a Lorenz Curve www.worldbank.org

  10. Many interactive graphics and videos demonstrate income and wealth inequality The L-Curve Wealth Inequality in America

  11. 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

  12. What is the government’s role? In a market economy, the government must: • Establish property rights • Protect borders/national defense In 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

  13. Government in the *Circular Flow

  14. Environmental Quality at Discount Prices, Economics and the Environment

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