Consider an economy with the following income distribution: Each person below the 25th percentile of the income distribution earns $15,000. Each person between the 25th and 50th percentiles earns $30,000. Each person between the 50th and 75th income percentiles earns $45,000. And each person between the 75th and 100th percentiles earns $60,000.
|
Household percentile
|
House hold income
|
|
|
|
Below 25th
|
15,000
|
|
|
|
26th- 50th
|
30,000
|
|
|
|
51th -75th
|
45,000
|
|
|
|
76thand above
|
60,000
|
|
|
a. Graph the Lorenz Curve and calculate the Gini Coefficient for this economy. (Hint: you can use the following table to make the necessary calculations to build the Lorenz Curve) Household Percentile Household Income Share of Income Cumulative Share of Income below 25th $15,000 26th - 50th $30,000 51th - 75th $45,000 76th and above $60,000
b. Calculate the 90/10 wage gap (i.e. the percent wage differential between the worker at the 90th percentile of the distribution and the worker at the 10th percentile of the distribution).