Chapter 13
Income Inequality
◼ Solutions to Problems
1. a. The Lorenz curve for the economy is drawn below. The data for the curve are as follows.
Total wealth in the economy is ($1)(5) + ($3)(5) = $20. The poorest 10 percent of the people own
Lorenz Curve
80%
90%
100%
Line of Perfect Equality
Chapter 13 Income Inequality 53
b. The Gini is constructed by dividing the area between the line of perfect equality and the Lorenz
curve by the entire area under the line of perfect equality. In our case,
c. To calculate the Gini, we must find the Area of A, B, C and D. For the Area of B, C, and D, we
apply the area formula for triangles.
In order to find the Area of A, we first calculate the area under the line of perfect equality. This is
simply a 1 by 1 right triangle implying that the area is 0.5. Following, we can subtract from this
2. The perfection of “distance learning” serves to create a superstar effect for professors, thereby raising
3. In the text, we see that higher inequality is good for growth via the channel of physical capital
accumulation but bad for growth via the channel of human capital accumulation. Availability of
4. The more economic mobility a poor person perceives that there is, the less he or she will be in favor
54 Weil • Economic Growth, Second Edition
However, it could be the case that the grandmother was middle class, but her daughter was upper or
lower class, and that her daughter was again middle class. So we need to do this calculation for three
sets of people, and then sum the probabilities: