Author Question: How do income and wealth change over a person's lifetime? How does this affect the distribution of ... (Read 83 times)

jeatrice · **on:** Jun 29, 2018

How do income and wealth change over a person's lifetime? How does this affect the distribution of income at a point in time?

What will be an ideal response?

Question 2

What is the meaning of the term marginal rate of substitution?

What will be an ideal response?

Koolkid240 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

On the average, incomes start out low, increase as the household's workers gain experience and other human capital, peak when the household's workers reach retirement age, and then fall after retirement. On the average, wealth also starts out low, increases as income increases and workers save for retirement, peaks at the point of retirement, then falls after retirement. Because there are always people at all stages of life, the distribution of income at a point in time overstates the actual inequality. The discrepancy would be greater for countries with large percentages of young and retired workers.

Answer to Question 2

The marginal rate of substitution between two goods is the rate at which a consumer is willing to give up some of one in exchange for more of the other, and remain indifferent between the old and the new combination. It is also the slope of an indifference curve between the two goods.