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 PowerPoint presentation)?

1. 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.

1. Use the two different distributions of income in the table below to answer the questions that follow.
2. Use the grid below and graph the two Lorenz curves. Label the axes.
3. Which curve has a more equal distribution? Curve A or Curve B?
4. Are these distributions more or less equal than that for the United States today (use the data from the PowerPoint presentation)?

Quintile

A

B

Poorest

10.5

2.5

Second

13.2

6.8

Middle

21.6

13.9

Fourth

26.4

24.2

Richest

28.3

52.6