Chapter 78, Problem 2CYU

a)

To determine

Whether the Lorenz curve moves upward and to the right, upward and to the left, or downward and to the left when the income of members of the economy is similar

Explanation of Solution

As in this case, the income of members of an economy is more similar, the Lorenz curve would be upward sloping and to the right because the inequality of income is zero or less. And, the income of one person can be higher than any other person which means this curve would not move to the left.

Economics Concept Introduction

Introduction: The Lorenz curve shows the graphical representation of inequality in income and inequality in wealth which was developed by Max Lorenz.

b)

To determine

Whether the area labeled A in figure 78.2 become larger, becomes smaller, or remains the same when the income of members of the economy is similar

Explanation of Solution

The area labeled A in the figure will become larger because the distribution of income will change in a way that increases the area downside to the area labeled B.

Economics Concept Introduction

Introduction: The Lorenz curve shows the graphical representation of inequality in income and inequality in wealth which was developed by Max Lorenz.

c)

To determine

Whether the area labeled B in figure 78.2 become larger, becomes smaller, or remains the same when the income of members of the economy is similar.

Explanation of Solution

The area labeled B in the figure will become smaller because, with the increase in the area of the A label, the area of B will become shorter due to the change in the distribution of income.

Economics Concept Introduction

Introduction: The Lorenz curve shows the graphical representation of inequality in income and inequality in wealth which was developed by Max Lorenz.

d)

To determine

Whether the Gini coefficient would become larger, become smaller, or remain the same when the income of members of the economy is similar

Explanation of Solution

There is no greater inequality of income between members of the economy as their income becomes more similar which means the Gini coefficient will be zero but if there is less inequality of income between members then it would be smaller. It becomes larger only when there is large inequality of income.

Economics Concept Introduction

Introduction: The Gini coefficient refers to the measurement of the inequality among values of a frequency distribution which is developed by Corrado Gini and it covers the distribution of income and distribution of wealth such as the levels of income.