Introduction to Microeconomics

Income Inequality and the Lorenz Curve

1.A group of 10 people have the following annual incomes: $24,000, $18,000, $50,000, $100,000, $12,000, $36,000, $80,000, $10,000, $24,000, $16,000. Calculate the share of total income received by each quintile of this income distribution. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution (use the data from the screenshot)?

2.Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how information technology can increase income inequality if it is a complement to high-income workers like salespeople and managers, but a substitute for low-income workers like file clerks and telephone receptionists.

Lorenz Curve for U.S. (2014) Income Wealth Quintile Income Cumulative Wealth Cumulative Lowest 3.1 3.1 0.1 0.1 Second 8.2 11.3 0.2 0.3 Third 14.3 25.6 3.2 3.5 Fourth 23.2 48.8 7.6 11.1 Highest 51.2 100.0 88.9 100.0 Data from U.S. Census Bureau