Essay on Micro Economics

5 Present four criticisms of current income inequality situation in US economy. What could be done to improve, show graph techniques discussed in text in your answer.

In actuality, the current problem of the income inequality is one of the major threats to the social stability in the US society. The income inequality provokes conflicts between representatives of different social classes since the gap between the rich and the poor grows wider. In such a situation, it is possible to suggest different views on the income inequality in the US. First, the poor are responsible for their position and they have to work harder to improve their position. This standpoint blames victims in their desperate position and low income. On the hand, such a position is quite questionable because the poor are the poor not because of their unwillingness to work but because they cannot find the job. At the same time, the gap between white-collar and blue-collar jobs is unjustly wide that cannot be explained by the mere unwillingness of some people to work. As a result, blue-collars may work hard but have low income, while white-collars can earn high income doing less efficient and productive job.

According to another view, the rich rip off all the profit and appropriate the lion share of the national wealth. Hence, it is the rich, who may be blamed of the income inequality. In fact, the rich does own a large part of the national wealth but the government performs the regulatory function redistributing the national wealth. Therefore, the rich alone cannot be blamed of the income inequality. Instead, the government should also take a part of the responsibility for the income inequality.

Alternatively, the recent economic recession has become the major cause of the widening gap between the income levels. The income inequality will decrease along with the economic recovery of the US. Such a view on the income inequality is reasonable but not absolutely correct since the economic recession is the result of malfunction of the US economy. The deterioration of the economic situation increases the gap between income levels but it does not provoke the income inequality. In fact, the economic system is the major cause of the income inequality, while the economic recession has just uncovered the wide gaps that exist in the income level today.

Finally, the integration of the US into the world economy and the process of globalization contributed to outsourcing many jobs that left many Americans unemployed and provoked the drop of their income. The elimination of this problem is possible through the stimulation of the creation of new jobs in the US. This view tends to externalize causes of the income inequality, but the inequality persists not only due to the international economic relations of the US but also due to the internal economic development of the country.

6 Explain how the several new notions of taxation would work. Identify the three types of tax systems discussed and which ones would fit the new notions of taxation.

Today, new notions such as fair taxation principle and flat taxation principle have emerged. The fair taxation implies the focus on sales tax and elimination of other taxes, while the flat taxation principle implies that all taxpayers will pay the same tax rate. These principles are applicable to different tax systems but they are the best applicable to the proportional tax system.

The progressive taxation system is the taxation system, in which the average tax rate increases as income increases. Fair and flat taxation principles cannot be applied in this system because of the diversification of taxes. Similarly, fair and flat taxation principles cannot be applied to the progressive taxation system. The regressive taxation system is the taxation system, in which the average tax rate increases as income decreases.

In this regard, the proportional tax system is the best to apply fair or flat taxation principle. The proportional tax system is the tax system, in which the average tax rate is the same no matter how much a person earns. Therefore, the fair principle may be applied because all people will pay the sale tax, while the flat tax principle is applicable because the tax rate will the same for all people.

7 Why are unions are helpful or not helpful for growth of middle class?

Unions are helpful for the growth of the middle class because unions protect interests of employees. As the income of employees and conditions of their work are stable they can shift toward the middle-class in the course of their professional career. For instance, even if an employee starts as a low-paid employee and belongs to the low-income class, unions will help the employee to develop his/her skills and to take higher salary, if the employee works hard and improves his/her professional skills and abilities. Unions protect employees from unreasonable job loss and force employers to pay compensations to employees. Thus, unions help employees to maintain higher standards of living, compared to non-unionized employees, and, therefore, facilitate their transition to the middle class.

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