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Homework 4 ECO335 Spring 2012 The homework is due on Monday, March 26th in class. NO late homework will be accepted. Use functional and personal...

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Homework 4 ECO335 Spring 2012 The homework is due on Monday, March 26 th in class. NO late homework will be accepted. 1. Use functional and personal income distribution to explain the inequality. There are five household in a society. The following two tables show the personal income and ownership of the factors and the functional income distribution respectively. Income source/HH Monthly income labor Capital Share of firms HH1 \$8000 skilled 3 HH2 \$2000 unskilled HH3 \$5000 skilled HH4 \$3000 unskilled 12.5 HH5 \$18000 none 10 100 monthly Wage (labor) Monthly Rent (capital) Dividend (shares) \$5000(skilled) \$2000 (unskilled) \$1000 \$80 a) What is the source of the income inequality between incomes of HH2 and HH3? b) What is the source of the income inequality between incomes of HH2 and HH4? c) What is the source of the income inequality between incomes of HH1 and HH3? d) Why does HH5 is the richest even if he does not work (He does not provide any labor)? 2. Show me in graph that the Lorenz curve incorporates the Dalton principle. 3. Draw Lorenz curves of the following income distributions in one graph . Can you tell from the curve you draw that which income distribution is more equal than the other one? Income distribution I Income level \$400 \$700 \$800 \$1000 \$1200 Number of people in each group 10 10 10 10 10
Income distribution II Income level \$200 \$300 \$800 \$1500 \$2000 10 10 10 10 10 4. Calculate the range R, coefficient of variation (C) and Gini coefficient (G) of the following income distributions. Compare the R, C and G for two income distributions. Compare the results of the two income distributions. Income distribution I Income level \$80 \$150 \$360 Number of people in each group 3 5 2 Income distribution II Income level \$80 \$150 \$360 Number of people in each group 5 3 2

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