# Economic Development - Inequality

• Oct 3rd 2009, 12:46 PM
JoeZYe
Economic Development - Inequality
I've been having some issues with some components of this problem

Consider an economy with 5 citizens who have the following incomes: 5, 3, 10, 0, 5.
(a) Calculate the Kuznets ratio.

(c) Draw the country’s Lorenz curve.

(e) Suppose (again asuming the income distribution described at the beginning of this question) that
everyone’s income doubles. Draw the new Lorenz curve. Did inequality go up or down?

For (a), I got that the Kuznets ratio is 0/10 or just 0. I was wondering if someone could confirm this.

For (c), I had 0/23 income for the bottom 20% of the population, 3/23 for the bottom 40%, and here's where it got tricky. Since there were two 5s, I wasn't sure what to do, but I added another 5 to get 8/23 for the bottom 60%, and added 5 again to get 13/23 for the bottom 80%. Was that correct?

For (e), I got the same curve that I did for (c), so graphically, inequality remains the same. However, intuitively, inequality would have increased, so I'm wondering if inequality actually goes up.

Thanks!