SOLUTIONS MANUAL
All Chapters 1-18, 100% Original Verified,
A+ Grade)
All Chapter Arranged Reverse: 18-1
Microeconomics
Twelfth Edition
Michael Parkin
Robin Bade
This is the Only Original and Complete Solutions Manual for 12th Canadian Edition,
All other Files in The Market are Fake/Old/Wrong Edition.
, Chapter 18 ECONOMIC
INEQUALITY
Answers to the Review Quizzes
Page 429
1. Which is distributed more unequally, income or wealth? Why? Which is the better
measure?
Wealth is more unequally distributed than income. Wealth is distributed more unequally than
income because wealth data do not include the value of human capital, while the income data
measure income from all wealth, including human capital. So income is a better measure of
economic inequality than wealth.
2. How has the distribution of income changed in the past few decades?
Measured by the Gini ratio, the distribution of income in Canada became more unequal from
1990 to 2004. During the 1980s and since 2004, the distribution of after-tax income became
less unequal.
3. What are the main characteristics of people who earn high incomes and who earn
low incomes?
People who earn high incomes are most likely university graduates or those with a post-
graduate or professional degree, members of the labour force, earning income either by
working or from their wealth, living in a household with two parents, middle-aged, and with a
small number of children.
People who earn low incomes are most likely those who have not completed high school, not
in the labour force, earning an income in the form of a transfer payment from the government,
living in a family with a single female parent, either young or old, and with several children.
4. What is the low-income cutoff and how does the low-income incidence vary
across families?
The low-income cut-off is an income level below which a family has to spend a larger share of
its income on food, shelter, and clothing than an average family spends. For the current low-
income cut-offs, the expenditure share for food, shelter, and clothing is 70 percent. Since
2015, Canada's low-income incidence trend has been downward. It reached a high of 14.5
percent in 2015, and fell to 6.48 percent during the Covid pandemic in 2020.
5. How long does a low-income spell usually last?
Most low income is temporary and short-lived. Almost half of those in a low-income state exit
that state in 1 year or less and another one third exit a low-income state in 2 years.
Page 431
1. In which countries are incomes distributed most unequally and least unequally?
Brazil and South Africa have the most unequally distributed incomes. Finland and Sweden
and some other European nations have the most equally distributed incomes.
2. Which income distribution is more unequal and why: the income distribution in
Canada or in the entire world?
Copyright © 2025 Pearson Canada Inc.
,258 CHAPTER 18
The world Gini ratio is larger than Canada’s Gini ratio which indicates that world income is
less equally distributed than income in Canada. The reason is that many countries, especially
in Africa and Asia, are in a pre-industrial stage of economic development and are poor, while
industrial countries such as Canada, the United States, and those in Western Europe are
rich.
3. How can incomes become more unequally distributed within countries and less
unequally distributed across countries?
Average incomes in poorer countries are rising much faster than average incomes in rich
countries. While the gap between rich and poor is widening within countries, it is narrowing
across countries.
Page 436
1. What role does human capital play in accounting for income inequality?
Acquiring human capital is costly so the greater the human capital, the smaller the supply of
workers. The difference in supply means that the more human capital an individual attains,
the more income that individual will likely earn, other things remaining the same. Greater
variation in human capital across households increases the degree of income inequality.
2. What role might discrimination play in accounting for income inequality?
If the value of marginal product of labour for one group is perceived to be higher than that of
another group, then the equilibrium wage earned will vary across the groups, despite the fact
that the two groups have equal ability. Economists disagree about whether discrimination
actually causes wage differentials. Firms that practice discrimination in the labour market face
higher production costs (they pay higher wages for the same value of marginal product) than
those firms that do not. If this line of reasoning is correct, the profit of the firms practicing
discrimination will be lower and the market price of their goods and services will be higher
than non-discriminating firms. This force could be strong enough to eliminate the effects of
discrimination.
3. What role might contests among superstars play in accounting for income
inequality?
Contests can explain why the super-rich have incomes that have increased greatly over the
years. With increased globalization, the pool of “contestants” increases dramatically and each
contestant’s probability of winning shrinks. So contests need to have larger differences in
payouts for the winners versus the losers to induce larger efforts to win the contest. The
result is that the contest winners—sports stars, entertainment stars, CEOs—nowadays have
much larger incomes than the vast number of losers.
4. How might technological change and globalization explain trends in the
distribution of income?
Information technologies such as computers and laser scanners are substitutes for low-
skilled labour and complements of high-skilled labour. These technologies increase the
demand for high-skilled labour and increase the incomes of high-skilled labour, and decrease
the demand for low-skilled labour and decrease the incomes of low-skilled labour.
Globalization also has increased the demand for high-skilled labour and decreased the
demand for low-skilled labour in Canada. Globalization has made worldwide contests, so the
prizes for the winning superstars have increased as the size of the market has increased.
5. Does inherited wealth make the distribution of income less equal or more equal?
Intergenerational transfers of wealth do not always increase wealth inequality. If a generation
that has a high income saves a large part of that income and leaves wealth to a succeeding
generation that has a lower income, this transfer decreases the degree of inequality. But
Copyright © 2025 Pearson Canada Inc.
, ECONOMIC INEQUALITY 259
through assortative mating, wealth can become more concentrated in a small number of
families and make the distribution of wealth more unequal.
Page 439
1. How do governments in Canada redistribute income?
Governments in Canada redistribute income in three main ways: income taxes, income
maintenance programs, and subsidized services.
2. Describe the scale of redistribution in Canada.
The distribution after taxes and benefits is much less unequal than the market distribution. In
2020, the lowest 10 percent of households received only 0.3 percent of market income but
3.3 percent of after-tax income. The second-lowest 10 percent of households received 2.2
percent of market income but 5.2 percent of after-tax income. The highest 10 percent of
households received 29.2 percent of market income but only 22.0 percent of after-tax
income.
3. What is the big tradeoff? Why does it arise?
The big tradeoff is the tradeoff between equity and efficiency. The big tradeoff arises from the
fair results view of equity. Under this view, more equal is fairer; less equal is less fair. But
redistributing income and wealth to achieve greater equality creates inefficiencies. There are
two sources of inefficiency from redistributing income and wealth: Administrative cost arises
because some of the dollars collected are used up in the process of redistribution. And
deadweight loss arises because taxing people's income from their work and saving makes
them work and save less, resulting in smaller output and less consumption.
4. What is one of the major welfare challenges today and how is it being tackled in
Canada?
Households headed by single mothers present a major welfare challenge. For physically fit
single mothers, the long-term solution to their problem is education and on-the-job training—
acquiring human capital. The short-term solution is welfare. But welfare must be designed to
minimize the disincentive to pursue the long-term goals.
Copyright © 2025 Pearson Canada Inc.
All Chapters 1-18, 100% Original Verified,
A+ Grade)
All Chapter Arranged Reverse: 18-1
Microeconomics
Twelfth Edition
Michael Parkin
Robin Bade
This is the Only Original and Complete Solutions Manual for 12th Canadian Edition,
All other Files in The Market are Fake/Old/Wrong Edition.
, Chapter 18 ECONOMIC
INEQUALITY
Answers to the Review Quizzes
Page 429
1. Which is distributed more unequally, income or wealth? Why? Which is the better
measure?
Wealth is more unequally distributed than income. Wealth is distributed more unequally than
income because wealth data do not include the value of human capital, while the income data
measure income from all wealth, including human capital. So income is a better measure of
economic inequality than wealth.
2. How has the distribution of income changed in the past few decades?
Measured by the Gini ratio, the distribution of income in Canada became more unequal from
1990 to 2004. During the 1980s and since 2004, the distribution of after-tax income became
less unequal.
3. What are the main characteristics of people who earn high incomes and who earn
low incomes?
People who earn high incomes are most likely university graduates or those with a post-
graduate or professional degree, members of the labour force, earning income either by
working or from their wealth, living in a household with two parents, middle-aged, and with a
small number of children.
People who earn low incomes are most likely those who have not completed high school, not
in the labour force, earning an income in the form of a transfer payment from the government,
living in a family with a single female parent, either young or old, and with several children.
4. What is the low-income cutoff and how does the low-income incidence vary
across families?
The low-income cut-off is an income level below which a family has to spend a larger share of
its income on food, shelter, and clothing than an average family spends. For the current low-
income cut-offs, the expenditure share for food, shelter, and clothing is 70 percent. Since
2015, Canada's low-income incidence trend has been downward. It reached a high of 14.5
percent in 2015, and fell to 6.48 percent during the Covid pandemic in 2020.
5. How long does a low-income spell usually last?
Most low income is temporary and short-lived. Almost half of those in a low-income state exit
that state in 1 year or less and another one third exit a low-income state in 2 years.
Page 431
1. In which countries are incomes distributed most unequally and least unequally?
Brazil and South Africa have the most unequally distributed incomes. Finland and Sweden
and some other European nations have the most equally distributed incomes.
2. Which income distribution is more unequal and why: the income distribution in
Canada or in the entire world?
Copyright © 2025 Pearson Canada Inc.
,258 CHAPTER 18
The world Gini ratio is larger than Canada’s Gini ratio which indicates that world income is
less equally distributed than income in Canada. The reason is that many countries, especially
in Africa and Asia, are in a pre-industrial stage of economic development and are poor, while
industrial countries such as Canada, the United States, and those in Western Europe are
rich.
3. How can incomes become more unequally distributed within countries and less
unequally distributed across countries?
Average incomes in poorer countries are rising much faster than average incomes in rich
countries. While the gap between rich and poor is widening within countries, it is narrowing
across countries.
Page 436
1. What role does human capital play in accounting for income inequality?
Acquiring human capital is costly so the greater the human capital, the smaller the supply of
workers. The difference in supply means that the more human capital an individual attains,
the more income that individual will likely earn, other things remaining the same. Greater
variation in human capital across households increases the degree of income inequality.
2. What role might discrimination play in accounting for income inequality?
If the value of marginal product of labour for one group is perceived to be higher than that of
another group, then the equilibrium wage earned will vary across the groups, despite the fact
that the two groups have equal ability. Economists disagree about whether discrimination
actually causes wage differentials. Firms that practice discrimination in the labour market face
higher production costs (they pay higher wages for the same value of marginal product) than
those firms that do not. If this line of reasoning is correct, the profit of the firms practicing
discrimination will be lower and the market price of their goods and services will be higher
than non-discriminating firms. This force could be strong enough to eliminate the effects of
discrimination.
3. What role might contests among superstars play in accounting for income
inequality?
Contests can explain why the super-rich have incomes that have increased greatly over the
years. With increased globalization, the pool of “contestants” increases dramatically and each
contestant’s probability of winning shrinks. So contests need to have larger differences in
payouts for the winners versus the losers to induce larger efforts to win the contest. The
result is that the contest winners—sports stars, entertainment stars, CEOs—nowadays have
much larger incomes than the vast number of losers.
4. How might technological change and globalization explain trends in the
distribution of income?
Information technologies such as computers and laser scanners are substitutes for low-
skilled labour and complements of high-skilled labour. These technologies increase the
demand for high-skilled labour and increase the incomes of high-skilled labour, and decrease
the demand for low-skilled labour and decrease the incomes of low-skilled labour.
Globalization also has increased the demand for high-skilled labour and decreased the
demand for low-skilled labour in Canada. Globalization has made worldwide contests, so the
prizes for the winning superstars have increased as the size of the market has increased.
5. Does inherited wealth make the distribution of income less equal or more equal?
Intergenerational transfers of wealth do not always increase wealth inequality. If a generation
that has a high income saves a large part of that income and leaves wealth to a succeeding
generation that has a lower income, this transfer decreases the degree of inequality. But
Copyright © 2025 Pearson Canada Inc.
, ECONOMIC INEQUALITY 259
through assortative mating, wealth can become more concentrated in a small number of
families and make the distribution of wealth more unequal.
Page 439
1. How do governments in Canada redistribute income?
Governments in Canada redistribute income in three main ways: income taxes, income
maintenance programs, and subsidized services.
2. Describe the scale of redistribution in Canada.
The distribution after taxes and benefits is much less unequal than the market distribution. In
2020, the lowest 10 percent of households received only 0.3 percent of market income but
3.3 percent of after-tax income. The second-lowest 10 percent of households received 2.2
percent of market income but 5.2 percent of after-tax income. The highest 10 percent of
households received 29.2 percent of market income but only 22.0 percent of after-tax
income.
3. What is the big tradeoff? Why does it arise?
The big tradeoff is the tradeoff between equity and efficiency. The big tradeoff arises from the
fair results view of equity. Under this view, more equal is fairer; less equal is less fair. But
redistributing income and wealth to achieve greater equality creates inefficiencies. There are
two sources of inefficiency from redistributing income and wealth: Administrative cost arises
because some of the dollars collected are used up in the process of redistribution. And
deadweight loss arises because taxing people's income from their work and saving makes
them work and save less, resulting in smaller output and less consumption.
4. What is one of the major welfare challenges today and how is it being tackled in
Canada?
Households headed by single mothers present a major welfare challenge. For physically fit
single mothers, the long-term solution to their problem is education and on-the-job training—
acquiring human capital. The short-term solution is welfare. But welfare must be designed to
minimize the disincentive to pursue the long-term goals.
Copyright © 2025 Pearson Canada Inc.
