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Here’s a weird but easy to calculate economy. Suppose everybody in the economy experiences exactly same...

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Economics

Here’s a weird but easy to calculate economy. Suppose everybodyin the economy experiences exactly same life story: start workingfor free at age 1 for $1/hour, and then has a wage increase $1every year until age 100. That is, a person who is 20 years oldmakes $20/hour, a person who is 45 years old makes $45/hour, and soon. Every year, one person is born, and 1 person reaches age 100and dies. Everyone lives for 100 years. That is, at any point intime, the economy is made of 100 people, 1 person who is aged 0(been born in the current year), 1 person aged 1, 1 person aged 2,1 person aged 3, …, all the way to 1 person aged 99, each earningtheir age in dollars per hour.

a. Calculate the Gini coefficient for this economy. b. Thecurrent estimates of Gini around the world ranges from (the lowestin the world) 23.7 in Slovenia to (the highest in the world) 63.2in Lesotho. How does our imaginary economy compare to thereal-world countries? (that is, is it unusually high, unusuallylow, or about average?) c. In your opinion, is the incomeinequality in our imaginary economy a bad thing and requires thatthe government redistributes incomes? Explain why or why not.

Answer & Explanation Solved by verified expert
4.2 Ratings (660 Votes)
b Our imaginary economy has a gini coefficient of 33 ieScore of 33 when measured on a scale from 0 to 100 A ginicoefficient of less than 02 represents perfect equality and above05 shows severe inequality Any score    See Answer
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