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Analyzing changes in wealth distribution

Consider a 12-person stylized dual economy with the following income distribution:
(1,1,1,1,1,1,1,1,1,4,4,4,4)
1- Graph the Lorenz curve.
2- Calculate The Gini coefficient
3-Now suppose the incomes of two members increase from 1to 4. Graph the Lorenz curve (you may use your graph in part1, distinguish which curve applies here.)
4- what kind of growth is this: traditional sector enrichment, modern sector enrichment, modern sector enlargement, or modern sector international effect?
5- Can you say what has happened to inequality?
-Suppose everybody increases by 10%. what happens to inequality? justify the answer.

Solution Preview

Consider a 12-person stylized dual economy with the following income distribution:
(1,1,1,1,1,1,1,1,4,4,4,4)
1- Graph the Lorenz curve.
First we find the total wealth in the economy: 8+ 16 = 24
Each person with an income of 1 has 1/24 = 4% of the wealth and represents 1/12 = 8% of the population
Thus our first point will be at 8 and 4.
As we proceed, we find that 50% of the population has 6/24 = 25% of the wealth. So we will find a point at 50% on the x axis and 25% on the y axis.
At 75% of the population, we find that total income is now: 12/24 = 50%
You can plot these data using Excel, as shown in the attached file. Excel will then generate a scatter plot, giving the Lorenz curve. See the attached file. The Lorenz curve is shown in red squares.
2- Calculate The Gini coefficient
The Gini coefficient is the ...

Solution Summary

Lorenz curve graphing, Gini coefficient, determination of growth pattern, and changes in inequality.

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