We develop a model of monopolistic competition that accounts for consumers’ heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint...

Differences between black and white students in Britain are investigated. If black parents would invest in education as much as white parents do, the racial test score gap in mathematics and reading would be reduced by 7 and 9%.