In an economy of 10 people, 8 people work in the rural sector with yearly in-...

 

  

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In an economy of 10 people, 8 people work in the rural sector with yearly in- come equal to $1000, 1 people in urban formal sector with yearly income equal to $2000, and 1 people in urban informal sector with yearly income equal to $0. The probability of getting urban formal job de- pends on the proportion of such jobs to the urban labor force, exactly as in the Harris-Todaro model. (1) [5 points] Given the income distribution, please draw the Lorenz Curve of this economy. (2) [10 points] Calculate the Gini Coefficient (G). [Note: To simplify the calculation, based on rela- tive income principle, income distribution of the former can be written as: (0, 1, 2); (0, 8, 1), the first set of numbers represents the various incomes (unit: thousand $), whereas the second set of numbers represents the number of people earning each of these] (3) [5 points] The government creates 1 more job position in urban formal sector, namely that now 2 people could work in the urban formal sector. We assume that the wage in each sector does not change. Then, how many people will migrate from the rural to the urban after job creation? (4) [10 points] Apply the Lorenz criterion to compare this new income distribution with the former. [Note: to answer whether the level of income inequality increase or decrease based on Lorenz cri- terion] In an economy of 10 people, 8 people work in the rural sector with yearly in- come equal to $1000, 1 people in urban formal sector with yearly income equal to $2000, and 1 people in urban informal sector with yearly income equal to $0. The probability of getting urban formal job de- pends on the proportion of such jobs to the urban labor force, exactly as in the Harris-Todaro model. (1) [5 points] Given the income distribution, please draw the Lorenz Curve of this economy. (2) [10 points] Calculate the Gini Coefficient (G). [Note: To simplify the calculation, based on rela- tive income principle, income distribution of the former can be written as: (0, 1, 2); (0, 8, 1), the first set of numbers represents the various incomes (unit: thousand $), whereas the second set of numbers represents the number of people earning each of these] (3) [5 points] The government creates 1 more job position in urban formal sector, namely that now 2 people could work in the urban formal sector. We assume that the wage in each sector does not change. Then, how many people will migrate from the rural to the urban after job creation? (4) [10 points] Apply the Lorenz criterion to compare this new income distribution with the former. [Note: to answer whether the level of income inequality increase or decrease based on Lorenz cri- terion]

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1 Given the income distribution please draw the Lorenz Curve of this economy The Lorenz Curve for th... View the full answer