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Chapter 30: Q.4 (page 690)

a. What is the value of the Gini coefficient if area B is twice as large as area A?

b. Suppose that the Lorenz curve becomes more bowed, with the result that area B becomes exactly the same size as area A. What will be the new value of the Gini coefficient?

Short Answer

Expert verified

a.33.33%

b.50%

Step by step solution

01

Given Information

The Gini coefficient is the proportion of the region between the line of amazing equity and the line of wonderful inequality. Greater inequality implies higher coefficient as well as the other way around.

02

Explanation Part (a)

a. We know,Gini CoefficientisA/(A+B)

Area B = 2 Area A

Hence the Gini coefficient is A/(A+B)=A/3A=1/3

which is 33.33%

03

Explanation Part (b)

b. We know,

Area B = Area A

Hence, the Gini coefficient is A/(A+B)=A/2A=1/2

which is50%

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Most popular questions from this chapter

A government agency notifies the physicians' group in Problem 30-10 that to continue providing services in the community, the group must document its activities. The resulting paperwork expenses raise the cost of each unit of health care services that the group provides. What is the likely effect on the profit-maximizing price and the equilibrium quantity of health care services provided by the physicians' group in this community?

Could it be rational for someone to choose to be uninsured and pay an annual $250 penalty? Explain your reasoning.

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?

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?)

Who provides the more than $100 billion that Medicare spends on prescription drugs each year?
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