05 Jun Question Homework 2 – ECON 471
Question
Homework 2 – ECON 471
Read these instructions carefully!
· Carefully answer each of the questions below.
· You need to show your work, not just the final answer
· You can write or type your answers for the questions
· Please put your name and PSU ID number at the top of the 1st page
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· If you typed everything:
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o Be sure your assignment is all on one file. Failure to submit a single file will result in points being deducted
Homework 2 – ECON 471
1. Which will be larger for a country: PG or APG? Please explain. (8 points)
2. Country A and Country B have the same population of 200 million. Use the figures in the table below to calculate the head-count ratio and average poverty gap in each country. Finally, carefully interpret the results. (8 points)
Income Distribution below poverty line ($1 per day) 25 cents per day 50 cents per day 75 cents per day
Country A (millions of people) 90 30 30
Country B (millions of people) 10 60 80
3. Can the Lorenz curve slope downward? Please explain. (8 points)
4. This table below reports the distribution of income in Canada and the United States.
Quintile 1st 2nd 3rd 4th 5th
Canada 7.7 13.7 19.0 24.8 34.8
U.S. 4.5 10.7 16.6 24.1 44.1
Draw the Lorenz curves for the two countries in the same graph. Without actually calculating the Gini coefficient, use the information from the Lorenz curves and explain which country has the lower income inequality measure. (8 points)
5. From the data in 4, compute the Gini coefficient for both countries. Does this agree with your answer to the previous question? (8 points)
6. If all income quintiles in a country experience the same percentage increase in income, what happens to the Lorenz curve? (8 points)
7. For the sake of this question, let’s assume a country with a zero return to education and education is the only factor that affects income, which is $30,000 per person. What would the Lorenz curve look like? (8 points)
8. Now, let’s modify the last question and say that the return to education is 20% and that those with no income earn $10,000 a year. There are five equal sized groups in the economy and the first has no education, the second has 1 year, the third has 2 years, and so on. Draw the Lorenz curve. (8 points)
9. How do the Lorenz curves from 7 and 8 differ? What concept does this change illustrate? (6 points)
10. Please read the article “To Beat Back Poverty, Pay the Poor” and answer this and the next two questions. First, how do these “conditional cash transfer” programs affect the average poverty gap in the countries that use them? (5 points)
11. Next, what happened to the Lorenz curve and Gini coefficient in Brazil as a result of the introduction of the Bolsa Familia? Be sure to fully explain your answer. (5 points)
12. Finally, what is the likely impact of Mexico’s Oportunidades program on intergenerational mobility? Please explain. (5 points)
13. Please read the article “Hope Springs a Trap” and answer this and the next two questions. First, from the first four paragraphs in the article, name two specific clues that led Duflo and Bardhan to believe that it is indeed the absence of optimism that played a large role in keeping people trapped in poverty. (5 points)
14. What are two examples that illustrate that the poor have misconceptions (ideas that are contrary to economic findings in the area) about what they can do to escape the poverty trap? (5 points)
15. What is the nature of the law in India that has led to a striking degree of convergence between goals for sons and daughters? (5 points)
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