Problem 4 Economic Inequality (20 points) 1) Figure 2 below is an image of a Lorenz...

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Problem 4 Economic Inequality (20 points) 1) Figure 2 below is an image of a Lorenz curve. a. (4) When the Lorenz curve sags

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Answer 1

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Problem 4)

(1) (a) When the Lorenz curve sags lowers, this means that it is farther away from the 45-degree line that is the line of perfect equality (no inequality). Thus, the lower the Lorenz curve, the higher the inequality associated and the more unequal is the economy.

(b) The Gini coefficint from the figure can be calculated as follows:

Gini = Area below the 45-degree line and above the Lorenz curve / Area below the 45-degree line

(i) Tye typical range of Gini coefficient is 0 to 1

(ii) A higher coefficient means the the line of perfect equality and the Lorenz curve are farther away and thus the economy is more unequal.

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Answer 2

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