rcent of the world’s household wealth; the richest 2 percent of adults have more than half of the world's household wealth; the richest 10 percent of adults account for 85 percent of the world’s wealth, and the lowest 50 percent of the world's adult population have 1 percent of the world's wealth. Find the value of p in the Lorenz functions L(
rcent of the world’s household wealth; the richest 2 percent of adults have more than half of the world's household wealth; the richest 10 percent of adults account for 85 percent of the world’s wealth, and the lowest 50 percent of the world's adult population have 1 percent of the world's wealth. Find the value of p in the Lorenz functions L(
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A 2006 report by the Helsinki-based World Institute for Development Economics Research concluded that the richest 1 percent of adults worldwide have 40 percent of the world’s household wealth; the richest 2 percent of adults have more than half of the world's household wealth; the richest 10 percent of adults account for 85 percent of the world’s wealth, and the lowest 50 percent of the world's adult population have 1 percent of the world's wealth. Find the value of p in the Lorenz functions L(x)=xpL(x)=x^p that best accounts for these facts.
Transcribed Image Text:A 2006 report by the Helsinki-based World Institute for Development Economics Research concluded that the richest 1
percent of adults worldwide have 40 percent of the world's household wealth; the richest 2 percent of adults have more than
half of the world's household wealth; the richest 10 percent of adults account for 85 percent of the world's wealth; and the
lowest 50 percent of the world's adult population have 1 percent of the world's wealth. Find the value of p in the Lorenz
functions L (x) = xP that best accounts for these facts.
p =
Steps to solve for p:
Write the given information as points and plot them on a graph. Connect these points with straight lines and find the area of
each shape. This is B. Take the area of the triangle (A + B) to solve for A, then double to get G. Now solve for p using the
same methods you used in the previous problem.
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