1.The New Zealand government definition of poverty is the same in all communities around the country. Is this appropriate? Why or why not?
2.Consider two people with the following demand functions for a public good:
P1 = 10 – 0.1G,
P2 = 20 – 0.1G, where Pi is the price that i is willing to pay for quantity G.
a. What is the optimal level of the public good if the total cost of the public good is 25G?
b. Suppose the total cost is 5G. What is the optimal level of G.?
c. Suppose the total cost of the public good is 40G. What is the optimal level of G?
3. Consider a community with ten persons
a) Plot the Lorenz curve for the income distribution (2,4,6,8,10,12,14,16,18, 20).
b) Consider an income redistribution that takes two units of income from each of the four richest people and gives two units to each of the two poorest. Plot the Lorenz curve again to demonstrate that inequality has decreased.
a. Show that the Lorenz curve for the income distribution (2,3,5,9,11,12,15,17,19,20) crosses the Lorenz curve for the distribution in part a).
c) Explain what is the Gini coefficient is, and how do you think it would order the degree of inequality among the three distributions used in parts a) to c) in this question. Please justify your answers.
4.Consider an income guarantee program with an income guarantee of $3,000 and a benefit reduction rate of 50%. A person can work up to 2,000 hours per year at $6 per hour. Alice, Bob, Calvin, and Deborah work for 100, 333¹/3, 400, and 600 hours, respectively, under this program.
The government is considering altering the program to improve work incentives. Its proposal has two pieces. First, it will lower the guarantee to $2,000. Second, it will not reduce benefits for the first $3,000 earned by the workers. After this, it will reduce benefits at a reduction rate of 50%.
a Draw the budget constraint facing any worker under the original program.
b Draw the budget constraint facing any worker under the proposed new program.
c Which of the four workers do you expect to work more under the new program? Who do you expect work less?