14. Ernest Hemingway and F. Scott Fitzgerald supposedly had the following exchange:
Fitzgerald: "The rich are different from us."
Hemingway: "Yes, they have more money."
Fitzgerald was fascinated by the rich, but social scientists are more interested in the poor, and the question of how the poor differ from the rest of society is a subject of debate. A variety of studies indicate that the poor are more likely to have social pathologies; for example, they are more likely to commit violent crime and more likely to abuse alcohol and drugs. But what is cause and what is effect? The Fitzgerald-type of position suggests that the pathologies are a cause of poverty, while a Hemingway-type of position suggests that the pathologies are the result of poverty.
a. If you think that the negative income tax is a good way to attack poverty (and many economists do), where do you probably stand on this question? Explain.
b. If you believe that people are rational, where do you probably stand?
c. How about people who think that in-kind aid is preferable to cash aid?
d. From what you know about the world, are the poor and non-poor similar except that the poor have less money? Or are there differences between the poor and others that cause the differences in income?
15. In competitive markets, survival is precarious. A firm that does not earn a profit will eventually fail. This need for profit limits what a firm is able to do and has some interesting things to say about discrimination.
Suppose that there are two groups of people, Jorities and Norities.
a) Suppose that for reasons of culture or politics, Norities are poorly educated. Norities are paid less than Jorities. Is a pay differential sustainable with competitive markets? If you say it is not, how can someone profit from a differential?b) Suppose that Jorities and Norities are equally productive. However, some business owners do not like Norities and will hire them only at reduced wages. Is a pay differential sustainable with competitive markets? If you say it is not, how can someone profit from a differential?
c) Suppose that Jorities and Norities are equally productive. However, some customers do not like Norities and will not buy from firms that hire them. Is a pay differential sustainable with competitive markets? If you say it is not, how can someone profit from a differential?
d) Suppose that Jorities and Norities are equally productive. However, some Jorities refuse to work with Norities. Is a pay differential sustainable with competitive markets? If you say it is not, how can someone profit from a differential?
e) Suppose that a majority group does not like a minority group. Should they count on the market as a way of keeping the minority in its place, or should they look to government as a better way to achieve their goals? Explain why you answer as you do.
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