3. Income Inequality: Below, you are given some income information for two econo
ID: 1177866 • Letter: 3
Question
3. Income Inequality: Below, you are given some income information for two economies, Monster and Bedrock, as given below. Assume each economy has exactly 5 people. You must show all of your work where calculations are required and you must include a brief explanation of approximately 50 words for written answers to receive full credit:
Citizens of Monster Island
Income:
Citizens of Bedrock
Income:
Scooby Doo
$6
Fred
$130
Fred
$40
Barney
$60
Shaggy
$22
Betty
$85
Daphne
$100
Wilma
$185
Velma
$32
Dino
$40
TOTAL
$200
TOTAL
$500
a. (6pts) In the tables below for each country, fill in the columns with:
i) the citizens names (each representing one quintile), ranking from poorest to richest;
ii) Calculate the % of total income each quintile earned.
iii) Calculate the cumulative % of total income to derive the points for their Lorenz curves. You must show all of your work to receive full credit.
Monster Island
Quintiles:
i) Quintile/ Citizen name:
Cumulative % of households
ii) Quintiles % of Total income
iii) cumulative % of total income
-----------------
0.0%
0.0%
0.0%
Poorest 20%
20.0%
2nd 20%
40.0%
3rd 20%
60.0%
4th 20%
80.0%
Richest 20%
100.0%
TOTAL
100.0%
100.0%
Bedrock
Quintiles:
i) Quintile/ Citizen name:
Cumulative % of households
ii) Quintiles % of Total income
iii) cumulative % of total income
-----------------
0.0%
0.0%
0.0%
Poorest 20%
20.0%
2nd 20%
40.0%
3rd 20%
60.0%
4th 20%
80.0%
Richest 20%
100.0%
TOTAL
100.0%
100.0%
a. (2pts) On one graph, construct each country%u2019s Lorenz curve (you don%u2019t need to submit the graph). Which country%u2019s income distribution is more equal? How do you know?
b. (2pts) Which country would have the lower Gini coefficient? Why?
Citizens of Monster Island
Income:
Citizens of Bedrock
Income:
Scooby Doo
$6
Fred
$130
Fred
$40
Barney
$60
Shaggy
$22
Betty
$85
Daphne
$100
Wilma
$185
Velma
$32
Dino
$40
TOTAL
$200
TOTAL
$500
Explanation / Answer
uintiles:
i) Quintile/ Citizen name:
Cumulative % of households
ii) Quintiles % of Total income
iii) cumulative % of total income
-----------------
0.0%
0.0%
0.0%
Poorest 20%
Scooby Doo
20.0%
3
3
2nd 20%
Fred
40.0%
11
14
3rd 20%
Shaggy
60.0%
16
30
4th 20%
Daphne
80.0%
20
50
Richest 20%
Velma
100.0%
50
100
TOTAL
100.0%
100.0%
uintiles:
i) Quintile/ Citizen name:
Cumulative % of households
ii) Quintiles % of Total income
iii) cumulative % of total income
-----------------
0.0%
0.0%
0.0%
Poorest 20%
Scooby Doo
20.0%
3
3
2nd 20%
Fred
40.0%
11
14
3rd 20%
Shaggy
60.0%
16
30
4th 20%
Daphne
80.0%
20
50
Richest 20%
Velma
100.0%
50
100
TOTAL
100.0%
100.0%
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