Assignment:
1: Consider an economy with the following distribution of income:
a) Draw the Lorenz curve of this economy
b) What will happen to the Lorenz curve if the government introduces a progressive income tax system?
c) What will happen to the Gini coefficient if the government introduces a progressive income tax system?
2: Comment on the following information on income distribution
3: Assume an economy where half of the population has no income and individuals in the other half have all the same income.
a) Draw the Lorenz curve for this economy.
b) Calculate the Gini coefficient.
4. Consider an economy with 7 households. The three poorest households in this economy have income (and consumption) per day of 0.2$, 0.5$ and 0.5$, respectively. The other four households have income above the poverty line. The poverty line is 1$ per day. What is the poverty gap of this economy?
a) 3/7
b) 0.5
c) 0.25
d) 0.68
e) None of the above.
5. You are reading a report on poverty in Honduras. They report a head count index of 0.25, a mean consumption of those below the poverty line of 1.3$ and a poverty gap of 0.0875. What poverty line is being used in this report?
a) 1$
b) 1.25$
c) 1.75$
d) 2$
e) We do not have enough information