Inequality, Poverty, and Discrimination

Read this chapter for a more detailed look at the topic of income inequality and discrimination in the labor markets as these are real examples of market failures. Attempt the "Try It" problems at the end of each section before checking your answers.

4. The Economics of Discrimination

4.4. Key Takeaways

  • Discrimination means that people of similar economic characteristics experience unequal economic outcomes as a result of noneconomic factors such as race or sex.
  • Discrimination occurs in the marketplace only if employers, employees, or customers have discriminatory preferences and if such preferences are widely shared.
  • Competitive markets will tend to reduce discrimination if enough individuals lack such prejudices and take advantage of discrimination practiced by others.
  • Government intervention in the form of antidiscrimination laws may have reduced the degree of discrimination in the economy. There is considerable disagreement on this question but wage gaps have declined over time in the United States.