PRIN OF MICROECONOMICS
2nd Edition
ISBN: 9780393914085
Author: coppock
Publisher: Norton, W. W. & Company, Inc.
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Chapter 15, Problem 3SP
To determine
Determine the midtown and polarity income inequality ratio.
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Your friend points to the wages earned by your economics professor and her teaching assistant (TA) as an example of income inequality. Your tenured professor earns $120,000$120,000, drives a BMW, and vacations in Europe, whereas your TA earns $10,000$10,000 per year, rides a bike, and vacations at his mom's house. Because they both teach for a living, your friend argues that this income inequality is not just.
Which reply uses the economic life cycle to respond to your friend's argument?
Your professor has more bargaining power than your TA and, therefore, has higher earnings.
Your professor and TA earn different amounts now but they will have similar earnings over the course of their lives. Your professor was once a TA, and your TA will one day make better money.
Your professor has many more responsibilities than your TA and is, therefore, paid more.
Older workers typically have more expenses than younger workers due to the high cost of healthcare and other costs…
Why would income inequality be as damaging as poverty? Explain each concept.
Consider five individuals, of whom three have zero income and two have $10,000 each. Based on
Gini's original formula (G'), income inequality in this group is [gini).
Enter a number to two decimal places and add the zero, as in 0.25
Consider five individuals, of whom three have zero income and two have $10,000 each. Draw the
Lorenz curve. Note that the area under the line of perfect equality is 0.5. The area below the Lorenz
curve is
. The area between the Lorenz curve and the line of perfect equality is
. The Gini coefficient (area method) is
In all cases enter numbers to one decimal place and add the zero, as in 0.5
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- The following represents the income for the five citizens of Sodor: Thomas $14,000 James $20,000 Gordon $50,000 Percy $6,000 Clara $10,000 a) Make a table that shows the income, cumulative income, and cumulative income percentages for each of the quintiles. (Start with the lowest, meaning Percy) b) Draw a Lorenz curve and the line of absolute equality for the above situation. c) The tax rates for the island are as follows: no tax on the first $10,000, 10% tax rate on the next $10,000, and 50% tax rate on anything above $20,000. d) What is the total tax collected by the government? If each citizen receives 1/5 of the tax collected, how much would each receive? e) Make a table that shows the new income for the citizens, cumulative income, and the cumulative income percentage (income-tax payment + distribution payment) for each quintile. f) Add the new Lorenz curve to the graph in b). g) How have the Lorenz curve and Gini coefficient been affected by the tax? Explain.arrow_forwardThe following diagram shows the Lorenz curves for three countries. Country X's Lorenz curve is shown in blue, Country Y's Lorenz curve is shown in purple, and Country Z's Lorenz curve is shown in green. Region I is the area above Country X's Lorenz curve and below the 45-degree line. Region II is the area below Country X's Lorenz curve and above Country Y's Lorenz curve. Region III is the area below Country Y's Lorenz curve and above Country Z's Lorenz curve. Region IV is the area below Country Z's Lorenz curve. CUMULATIVE PERCENTAGE OF INCOME 100 60 9 20 0 0 I O Country Z Country X 11 40 O Country Y Country X 20 60 80 CUMULATIVE PERCENTAGE OF HOUSEHOLDS Country Y Country Z IV Based on the graph, the Gini coefficient for Country Y is given by II/ (I + II + III+IV) ▼ Which of the following countries has the lowest Gini coefficient? 100arrow_forwardImagine an economy with only two people. Larry earns $20,000 per year, while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this twoperson economy consists of two line segments. The first runs from the origin to point a, while the second runs from point a to point b. a. Calculate the Gini ratio for this two-person economy using the geometric formulas for the area of a triangle (= ½ × base × height) and the area of a rectangle ( = base × height). (Hint: The area under the line segment from point a to point b can be thought of as the sum of the area of a particular triangle and the area of a particular rectangle.) b. What would the Gini ratio be if the government taxed $20,000 away from Roger and gave it to Larry? (Hint: The figure will change.) c. Start again with Larry earning $20,000 per year and Roger earning $80,000 per year. What would the Gini ratio be if both their incomes doubled? How much has the Gini ratio changed from before the doubling…arrow_forward
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