Question

Suppose there is an economy with 10 people. One year the richest 2 get a raise while the other 8 see no change to their income. What would this do to the Lorenz curve and Gini coefficient?

a: The Lorenz curve would become less "bowed-out" while the Gini would fall.

b: The Lorenz curve would become more "bowed-out" while the Gini would fall.

c: The Lorenz curve would become more "bowed-out" while the Gini would rise.

d: The Lorenz curve would become less"bowed-out" while the Gini would rise.

In regard to Public Goods, the word "nonexcludable" means ....

a: that one person's use of the good does not interfere with another person's use.

b: that no one can PREVENT someone from benefitting from the good

c:that everyone MUST benefit from the good.

d: that someone has to pay in order to benefit from the good.

Answer 1

Q1 Answer is C.
Increase in income for richest 2 will increase income inequality.
Lorenz curve if more bowed show more inequality so Lorenz curve will be more bowed.
And if there is increase in inequality then value of gini coefficient will increase because gini coefficient of value 1 shows perfect inequality.
So value of gini coefficient will increase.
Q2 Answer is B.
Non excludability means no one could be prevented to use the public good. For example we can't prevent anyone who visit public park. This is called non excludability.

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