In the first problem solving scenario, consider a Greek island with ten inhabitants. Answer the questions below. a) Plot the Lorenz curve for the income distribution: (5, 8, 15, 18, 23, 35, 48, 52, 66, 80) b) The government plans to implement a 10% flat tax on income for each inhabitant of the island. Plot the new Lorenz curve and verify if this policy has reduced the inequality among the population. Argue c) Imagine that after one year the government decides to implement instead a lump-sum tax equal to 10 for all inhabitants with an income above 30. Plot the new Lorenz curve and verify if this policy has reduced the inequality among the population. Argue d) Calculate the Giní index and the Sen index for the three income distributions used in parts (a), (b) and (c) when the poverty line is z=14. Discuss the values obtained. e) Is it possible for a government to pursue a poverty reduction target, but at the same time ending up increasing inequality? Justify your answer.

In the first problem solving scenario, consider a Greek island with ten inhabitants. Answer the questions below. a) Plot the Lorenz curve for the income distribution: (5, 8, 15, 18, 23, 35, 48, 52, 66, 80) b) The government plans to implement a 10% flat tax on income for each inhabitant of the island. Plot the new Lorenz curve and verify if this policy has reduced the inequality among the population. Argue c) Imagine that after one year the government decides to implement instead a lump-sum tax equal to 10 for all inhabitants with an income above 30. Plot the new Lorenz curve and verify if this policy has reduced the inequality among the population. Argue d) Calculate the Giní index and the Sen index for the three income distributions used in parts (a), (b) and (c) when the poverty line is z=14. Discuss the values obtained. e) Is it possible for a government to pursue a poverty reduction target, but at the same time ending up increasing inequality? Justify your answer.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter15: Poverty And Economic Inequality

Section: Chapter Questions

Problem 8SCQ: Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage...

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