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The following represents the income for the five citizens of Sodor: Thomas $14,000 James $20,000 Gordon $50,000 Percy $6,000 Clara $10,000 a) Make a table that shows the income, cumulative income, and cumulative income percentages for each of the quintiles. (Start with the lowest, meaning Percy) b) Draw a Lorenz curve and the line of absolute equality for the above situation. c) The tax rates for the island are as follows: no tax on the first $10,000, 10% tax rate on the next $10,000, and 50% tax rate on anything above $20,000. d) What is the total tax collected by the government? If each citizen receives 1/5 of the tax collected, how much would each receive? e) Make a table that shows the new income for the citizens, cumulative income, and the cumulative income percentage (income-tax payment + distribution payment) for each quintile. f) Add the new Lorenz curve to the graph in b). g) How have the Lorenz curve and Gini coefficient been affected by the tax? Explain.

The following represents the income for the five citizens of Sodor: Thomas $14,000 James $20,000 Gordon $50,000 Percy $6,000 Clara $10,000 a) Make a table that shows the income, cumulative income, and cumulative income percentages for each of the quintiles. (Start with the lowest, meaning Percy) b) Draw a Lorenz curve and the line of absolute equality for the above situation. c) The tax rates for the island are as follows: no tax on the first $10,000, 10% tax rate on the next $10,000, and 50% tax rate on anything above $20,000. d) What is the total tax collected by the government? If each citizen receives 1/5 of the tax collected, how much would each receive? e) Make a table that shows the new income for the citizens, cumulative income, and the cumulative income percentage (income-tax payment + distribution payment) for each quintile. f) Add the new Lorenz curve to the graph in b). g) How have the Lorenz curve and Gini coefficient been affected by the tax? Explain.

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter20: Income Inequality And Poverty
Section: Chapter Questions
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The following represents the income for the five citizens of Sodor: Thomas $14,000 James $20,000 Gordon $50,000 Percy $6,000 Clara $10,000 a) Make a table that shows the income, cumulative income, and cumulative income percentages for each of the quintiles. (Start with the lowest, meaning Percy) b) Draw a Lorenz curve and the line of absolute equality for the above situation. c) The tax rates for the island are as follows: no tax on the first $10,000, 10% tax rate on the next $10,000, and 50% tax rate on anything above $20,000. d) What is the total tax collected by the government? If each citizen receives 1/5 of the tax collected, how much would each receive? e) Make a table that shows the new income for the citizens, cumulative income, and the cumulative income percentage (income-tax payment + distribution payment) for each quintile. f) Add the new Lorenz curve to the graph in b). g) How have the Lorenz curve and Gini coefficient been affected by the tax? Explain.
Transcribed Image Text:The following represents the income for the five citizens of Sodor: Thomas $14,000 James $20,000 Gordon $50,000 Percy $6,000 Clara $10,000 a) Make a table that shows the income, cumulative income, and cumulative income percentages for each of the quintiles. (Start with the lowest, meaning Percy) b) Draw a Lorenz curve and the line of absolute equality for the above situation. c) The tax rates for the island are as follows: no tax on the first $10,000, 10% tax rate on the next $10,000, and 50% tax rate on anything above $20,000. d) What is the total tax collected by the government? If each citizen receives 1/5 of the tax collected, how much would each receive? e) Make a table that shows the new income for the citizens, cumulative income, and the cumulative income percentage (income-tax payment + distribution payment) for each quintile. f) Add the new Lorenz curve to the graph in b). g) How have the Lorenz curve and Gini coefficient been affected by the tax? Explain.
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