Correct: A. Income inequality

The Gini Coefficient is a statistical measure used to represent the income or wealth inequality within a nation or any other group of people. It ranges from 0 to 1, where 0 represents perfect equality (everyone has the same income) and 1 represents perfect inequality (one person has all the money and everyone else has none).

Correct: D. Phillips

The Phillips Curve is an economic concept developed by A.W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory suggests that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. In the short run, it implies a trade-off where policymakers can "buy" lower unemployment by accepting higher inflation.

Correct: C. Lorenz Curve

The Lorenz Curve is a graphical representation of the distribution of income or of wealth within a population. It was developed by Max O. Lorenz in 1905. The further the curve bows away from the 45-degree "line of perfect equality," the more unequal the society is.

Correct: C. Inflation and Unemployment

The Phillips Curve illustrates a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, when unemployment is low, inflation tends to be high, and vice versa.

Correct: D. Measure income inequality

The Gini Coefficient (or Gini Index) is a statistical measure of distribution often used as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. The coefficient ranges from 0 (perfect equality) to 1 (perfect inequality).

Correct: B. Phillips Curve

The Phillips Curve is an economic concept developed by A.W. Phillips, stating that inflation and unemployment have a stable and inverse relationship. The theory suggests that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

Correct: D. Measuring income inequality

The Lorenz Curve is a graphical representation used to show the distribution of income or wealth within a population. The further the curve bows away from a straight 45-degree line, the more unequal the society is.

Correct: C. Tradeoff between inflation and unemployment

The Phillips Curve is a graph showing the inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, when unemployment is low, inflation tends to be high, and vice versa.

Correct: A. Lorenz curve

The Lorenz curve is a graphical representation of income or wealth distribution developed by Max O. Lorenz. On the graph, a straight diagonal line represents perfect equality, while the actual distribution is shown as a sagging curve beneath it. The area between the line of perfect equality and the observed Lorenz curve is used directly to mathematically calculate the Gini coefficient.

Correct: B. Monopsony

A monopsony occurs when there is only a single buyer in a market, which in labor economics translates to a single employer dominating a local job market. Because workers have no alternative employment options, the monopsonist has immense market power to artificially depress wages below what a competitive market would dictate. This concept is often used to justify the existence of minimum wage laws and labor unions to counter the employer's disproportionate power.

Correct: C. Efficiency wage theory

Efficiency wage theory proposes that an employer can increase profits by paying workers a wage higher than the equilibrium market rate. This premium pay motivates employees to work harder to avoid losing their lucrative job, reduces the costs associated with high staff turnover, and attracts a higher-quality pool of applican'ts. It directly challenges the classical economic assumption that wages merely adjust to clear the labor market.

Correct: D. The lump of labour fallacy

The lump of labour fallacy is an economic misconception suggesting that there is only a finite, fixed amount of work available in an economy. This fallacy is often cited by those who fear that new technology, longer working hours, or immigration will result in a net loss of jobs for existing workers. In reality, modern economies are dynamic; immigrants and automation increase overall productivity and consumption, generating new demands that create entirely new jobs.

Correct: A. Kuznets curve

The Kuznets curve is an economic hypothesis that charts an inverted U-shape relationship between economic development and income inequality. Developed by Simon Kuznets in the 1950s, it suggests that early industrialization inevitably widens the wealth gap as rural workers move to urban factories. However, as the economy matures, the creation of a welfare state, labor unions, and widespread democratization eventually force inequality back down.

Correct: B. The Marginal Revenue Product of Labor

In neoclassical labor economics, a firm maximizes its profits by hiring workers up to the point where the wage rate equals the Marginal Revenue Product of Labor (MRPL). The MRPL is the additional revenue a firm earns by hiring one more worker. If a worker generates $100 of extra revenue a day, the firm will gladly hire them if the wage is $80, but will stop hiring if the wage exceeds $100.

Correct: D. Reservation wage

The reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer below this wage will be rejected, while an offer above it will be accepted. The reservation wage is influenced by several factors, including the worker's savings, alternative income sources like unemployment benefits, and the value they place on their leisure time.

Correct: A. Dual labor market theory

Dual labor market theory asserts that the labor market is divided into two distinct, non-competing sectors: the primary and secondary markets. The primary sector features 'good jobs' with high wages, stability, unionization, and upward mobility, while the secondary sector consists of 'bad jobs' with low pay, precarious conditions, and high turnover. Because the two sectors rarely intersect, workers trapped in the secondary sector find it nearly impossible to transition to the primary sector regardless of their personal effort.

Correct: C. Absolute mobility

Absolute mobility measures whether a person or generation is financially better off than the previous generation, adjusting for inflation. It essentially asks, 'Did you make more money in real terms than your parents did at your age?' This contrasts with relative mobility, which measures whether a person moved up or down the societal income ladder compared to their peers.

Correct: B. The Great Gatsby Curve

The Great Gatsby Curve is a chart illustrating the connection between the concentration of wealth in one generation and the ability of those in the next generation to move up the economic ladder. It highlights that countries with high income inequality (like the US or Brazil) suffer from low social mobility, meaning poor children are far more likely to stay poor. Conversely, countries with low inequality (like Denmark) see much higher rates of class mobility.

Correct: D. The labor share of income

The labor share of income is the portion of a country's national income that is paid to workers in the form of wages, salaries, and benefits. The remaining portion goes to capital owners as profits, dividends, and rent. For decades, economists assumed the labor share remained remarkably constant, but since the 1980s, the labor share of income has steadily declined in most advanced economies due to automation and the decline of unions.

Correct: B. Statistical discrimination

Statistical discrimination is an economic theory of racial or gender inequality based on stereotypes and imperfect information. Because employers cannot perfectly know a job applican't's true productivity, they sometimes rationally (though illegally and unfairly) use the average statistics of the applican't's demographic group as a proxy for individual performance. This differs from taste-based discrimination, where the employer simply has a direct personal prejudice against the group.

Correct: A. The Capability Approach

The Capability Approach is a normative framework introduced by economist Amartya Sen that focuses on what individuals are actually capable of doing and being. It shifts the focus of poverty measurement away from purely financial metrics (like GDP or income) and towards human freedoms, such as the ability to be well-nourished, educated, and participate in society. This theoretical framework heavily influenced the creation of the United Nations' Human Development Index.

Correct: A. Flexicurity

Flexicurity is a welfare state model that combines a highly flexible labor market with extensive social security and active labor market policies. It allows employers to easily hire and fire workers, adapting rapidly to market changes without being bogged down by strict employment protection laws. In exchange, displaced workers receive generous unemployment benefits and intensive retraining programs to quickly re-enter the workforce.

Correct: B. Signaling Theory

Signaling Theory in labor economics proposes that educational attainment acts primarily as an expensive, difficult-to-obtain 'signal' of a worker's underlying ability. Rather than teaching specific job skills, completing a grueling university degree proves to a prospective employer that the applican't possesses high intelligence, compliance, and work ethic. It explains why an employer might hire a literature major for a corporate finance job over someone without a degree.

Correct: B. Return on capital is greater than economic growth

In his book 'Capital in the Twenty-First Century', economist Thomas Piketty argues that the rate of return on capital (r) historically exceeds the rate of economic growth (g). Because the wealthy derive most of their income from capital investments (like stocks and real estate) rather than wages, their wealth grows faster than the overall economy. Without progressive wealth taxation, Piketty claims this natural mathematical divergence inevitably leads to extreme, oligarchic wealth inequality.

Correct: C. Harris-Todaro model

The Harris-Todaro model is an influential economic framework used in development economics to explain rural-urban migration. It posits that individuals migrate to cities if their expected urban income (the high urban wage multiplied by the probability of actually finding a job) exceeds their current guaranteed agricultural income. This brilliantly explains why massive slums and high unemployment persist in developing cities despite continuous inward migration.

Correct: B. Lewis turning point

The Lewis turning point is a critical stage in economic development when the surplus labor from the agricultural sector is fully absorbed into the industrial sector. Before this point, factories can expand and hire workers at bare-minimum subsistence wages. Once the turning point is reached, employers must suddenly start raising wages to attract scarce labor, leading to rapid increases in the national standard of living and the emergence of a middle class.

Correct: A. Tournament theory

Tournament theory is an economic framework suggesting that massive wage differentials between corporate ranks are designed to induce maximum effort from employees competing for promotions. Just like athletes in a tennis tournament playing fiercely for a massive grand prize, lower-level executives work grueling hours with the hope of eventually winning the astronomically lucrative CEO position. Therefore, the CEO's massive salary is not necessarily about their individual output, but about motivating the entire firm below them.

Correct: C. Precariat

The Precariat is a sociological and economic term for a social class formed by people suffering from precarity, which is a condition of existence without predictability or job security. These workers typically rely on temporary contracts, gig work, or zero-hour contracts, lacking basic labor rights, pensions, and health benefits. Economists warn that the rapid expansion of the precariat leads to severe social instability and political radicalization.

Correct: C. The wealth Gini is higher than the income Gini

In almost every single country on Earth, the Gini coefficient for wealth is significan'tly higher than the Gini coefficient for income. This means that accumulated wealth (assets like property and stocks) is distributed far more unequally than yearly income (wages and salaries). While progressive taxation can somewhat balance income inequality, historical wealth compounds over generations, creating extreme concentrations of capital at the very top.

Correct: A. Intergenerational elasticity of income (IGE)

Intergenerational elasticity of income (IGE) is an economic metric that measures how much of a person's income variation is directly tied to the income of their parents. An IGE of 0 means perfect mobility (parents' wealth has zero effect), while an IGE of 1 means complete immobility (a child will end up exactly where their parents were). A higher IGE indicates a rigid society where class status is deeply entrenched.

Correct: C. Marginal Factor Cost

The Marginal Factor Cost (MFC) is the amount that an employer's total costs increase when they hire one additional unit of labor. In a monopsony, because the employer is the only buyer of labor, to hire more workers they must raise the wage rate to attract them. Crucially, they must also increase the wages of all existing employees to match this new rate, making the MFC significan'tly higher than the wage paid to the newest worker.

Correct: B. Taste-based discrimination

Taste-based discrimination is an economic model developed by Gary Becker which assumes that prejudiced employers have a 'taste' (preference) for discrimination and are willing to pay a financial penalty to avoid hiring certain minority groups. Because these bigoted employers refuse to hire perfectly qualified minority workers, they must pay higher wages to less qualified majority workers. Becker argued that in a perfectly competitive free market, non-discriminatory firms would hire the cheaper minority labor, outcompete the bigots, and drive them out of business.

Correct: B. Assortative mating

Assortative mating is a mating pattern and a form of sexual selection in which individuals with similar phenotypes or societal traits mate with one another more frequently than would be expected under a random mating pattern. In modern economics, 'educational assortative mating' refers to doctors marrying doctors, or lawyers marrying executives. This trend has drastically exacerbated household income inequality, as high-earning potential is concentrated into double-income power-couples, leaving lower-income individuals to marry each other.

Correct: B. Capital-skill complementarity

Capital-skill complementarity is a macroeconomic hypothesis stating that physical capital and skilled labor are complements, while physical capital and unskilled labor are substitutes. When a company buys an advanced robotic assembly system, they instantly fire the unskilled manual laborers who used to do the work. However, they must simultaneously hire highly educated engineers and programmers to maintain and operate the new machines, thus pushing up the wages of the educated class while hurting the working class.

Correct: C. Labor hysteresis

Hysteresis in labor economics refers to the phenomenon where a short-term economic shock causes long-lasting, permanent damage to the labor force. During a deep recession, workers who are unemployed for years lose their technical skills, miss out on critical industry developments, and suffer a stigma that makes employers reluctant to hire them. Consequently, the natural rate of unemployment actually rises, and the economy's total potential output permanently shrinks.