Overview: The Distribution of Income

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Simple circular flow highlights two essential markets, the markets for goods and services and the resource market (the market in which businesses buy inputs). This group of readings examines problems centered in the resource or input markets. The readings begin by explaining the forces that determine the amount of income people earn in a market economy. We then look at several positions about fairness.

After you complete this unit, you should be able to:

  • Interpret a Lorenz curve.
  • Define derived demand.
  • List three reasons that the market value of a resource can change, and give an example of each.
  • Compute marginal resource cost from the supply curve of the buyer when that supply curve is given in the form of a table.
  • Explain why marginal resource cost equals price for a buyer who is a price taker.
  • Explain why marginal revenue equals price for a seller who is a price taker, and why marginal revenue is less than price for a seller who is a price maker.
  • When given data on levels of input, marginal revenue product, and marginal resource cost, determine the level of input that maximizes profit.
  • List three views of what fairness implies about income distribution.
Copyright Robert Schenk