Chapter 30: Q.14 (page 690)
Now suppose that in the situation described in Problem 30-13, the distribution of income changes in such a way that A increases to one-third of the area denoted B. What is the new value of the Gini coefficient?
the new value of the Gini coefficient is
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Explain why the productivity standard for the distribution of income entails rewarding people based on their contribution to society's total output. Why does the productivity standard typically fail to yield an equal distribution of income?
Consider the graph nearby, which depicts Lorenz curves for countries X, Y, and Z.
a. Which country has the least income inequality?
b. Which country has the most income inequality?
c. Countries Y and Z are identical in all but one respect: population distribution. The share of the population made up of children below working age is much higher in country Z. Recently, however, birthrates have declined in country Z and risen in country Y. Assuming that the countries remain identical in all other respects, would you expect that in 20 years the Lorenz curves for the two countries will be closer together or farther apart? (Hint: According to the age-earnings cycle, what typically happens to income as an individual begins working and ages?)
Suppose that a nation has implemented a system for applying a tax rate of 2 per cent to the incomes earned by the 10 per cent of its residents with the highest incomes. All funds collected are then transferred directly to the 10 per cent of the nation's residents with the lowest incomes. What is the general effect on the shape of a Lorenz curve based on incomes after collection and redistribution of the tax?
Describe how to use a Lorenz curve to represent a nation's income distribution
Take a look at both Figure 30-8 and Figure 30-9. When health care programs such as Medicare, Medicaid, and the Affordable Care Act's health exchange system were created, Congress based projected costs on quantities of health care consumed at the time the programs were implemented. Was this a reasonable assumption given that the programs all cut out-of-pocket payments for beneficiaries? Explain.
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