EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 30, Problem 4P
To determine
(a)
Shape of Lorenz curve prior to collection and reduction of the tax.
To determine
(b)
Shape of Lorenz curve after to collection and reduction of the tax.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
2.1
In an effort to make the distribution of income more nearly equal, the government of a country passes a tax law that changes the Lorenz curve from y = 0.97x
for one year
to y = 0.33x + 0.67x for the next year. Find the Gini coefficient of income for both years. (Round your answers to three decimal places.)
before
after
Compare the distributions of income before and after the tax law was passed. Interpret the result.
O The change increases the difference in incomes.
The change makes no difference in incomes.
O There is not enough information to compare the incomes.
The change decreases the difference in incomes.
O The change makes the incomes equal.
Need Help?
Read It
Scientists studying the economics of a country, community, or group of people are often interested
in the distribution of wealth, where wealth is understood to mean the income or the personal assets
of individual households. A powerful tool for illustrating how wealth is distributed across a society
is the Lorenz curve (invented by the American economist Max Otto Lorenz in 1905).
A typical Lorenz curve is given by y = L(x), where 0 < x < 1 and 0 < y < 1. The variable
I represents the fraction of all households in the society and y = L(x) represents the fraction of
the total wealth that is owned by the fraction x of the society. For example, for the Lorenz curve
shown in Figure 1, we see that L(0.5) = 0.2, which means that 0.5 (50%) of the society owns 0.2
(20%) of the wealth.
bottom
botom
y A
1-
Line of perfect
equality
0.8 of households
control 0.6 of
the wealth.
Lorenz curve
0.5 of households
control 0.2 of
the wealth.
0.2
B
0.5
0.8 a1 1
Fraction of Households
Figure I
Fraction of…
Knowledge Booster
Similar questions
Recommended textbooks for you
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc