Problem Set 4 Solutions

# Problem Set 4 Solutions - DueSeptember8th,2010 1...

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Problem Set 4 Solutions Due September 8 th , 2010 1. Ch. 13 ‐ Income Inequity a. Explain the intuition behind the Kuznets curve (both increases and then decreases in income inequality as a country develops.) As a country develops, income inequality tends to increase and then decrease, as described by the Kuznets curve. This is due to the fact that as “high ­ skill” jobs are introduced to an economy, people in those jobs will experience large increases in income. Then as individuals respond to the difference in wages across sectors of the economy by obtaining more human capital, income inequality will begin to decrease once again. b. Calculate the Gini Coefficient for the economy represented by the Lorenz curve in the graph below. 4 . 0 200 80 200 ) 120 200 ( ) B) (A A ( t Coefficien Gini 200 ) 4 )( 100 ( 2 1 B) (A Triangle Whole of Area 120 40 30 20 10 10 5 5 ) 40 )( 1 ( ) 40 100 )( 1 ( 2 1 ) 20 )( 1 ( ) 20 40 )( 1 ( 2 1 ) 10 )( 1 ( ) 10 20 )( 1 ( 2 1 ) 10 )( 1 ( 2 1 (B) Curve Lorenz under Area = = = + = = + = + + + + + + = + + + + + + =

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2. Ch. 15 – Geography Climate and Natural Resources a. What is the link between climate and output?
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