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Questlon 2 Draw an Economically Feasible Frontier for South Africa {See Figure 19.15 in text]. Make sure the diagram is at least is a page
Questlon 2 Draw an Economically Feasible Frontier for South Africa {See Figure 19.15 in text]. Make sure the diagram is at least is a page in size and is neatly drawn, as you will be using it to answer the questions below. {a} What points on this curve reect possible allocations of income for the poor [less rich] and rich [5 marks]: i. If citizens have inequality-averse preferences ii. If citizens are not averser but have a preference for inequality iii. If citizens preferences are not influenced by inequality. iv. The Pareto Efficient set of allocations of income v. The most equal Pareto Efficient allocation of income vi. The most unequal Pareto Efficient allocation of income {bi Assume an indifference curve of an inequality-averse citizen. Plot one of these indifference curves cutting through the point on the Feasible Frontier of maximum combined income of both rich and poor (Point A in Figure 19.15 in text]. Discuss why this is not the desirable level of inequality in the society. Contrast this point with the desirable level of inequality in the society given the preferences of the inequality-averse citizen. Discuss the implications for national income of shifting to the desired level of inequality In society. [6 marks] {cl Discuss how the desirable level of Inequality in society changes if the citizens become less inequality-averse. Ensure you plot [draw] and discuss how and why the indifferences curves change, and why the initial level of inequality Is no longer optimal. [6 marks] id] Assume that the citizen's utility curve is given by: U = IDYA + 1WD, where YA is income of the Rich, and VB is income of Poor {less rich]. Plot the Indifference curves and equilibrium outcome on your diagram. [4 marks]
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