Problem Set 4

1. (c)
2. (a)
3. (c)
4. (b)
5. (c)
6. (c)
7. (a)
8. (e)
9. (d)
10. (b)
13.
Calculating the gini coefficient
Given the data on income of 1000 persons provided in excel, the following Lorenz curve
can be derived.

Lorenz Curve
1.2
1
0.8
percent of income

Lorenz curve

0.6

equality line

0.4
0.2
0
0

0.2

0.4

0.6

0.8

Percent 0f population

By definition, the Gini coefficient can be computed using the formula: Gini=

A
A+ B

Since the Lorenz curve is not a curve whose equation can be determined, the area under this
curve (B) is approximated using the rectangles method using excel to get 0.24676386. Area
A is given by 0.5-B because the area under the equality line is 0.5.

Therefore, area A=0.5- 0.24676386= 0.25323614

Using the formula, Gini=

0.25323614
= 0.50647227
0.5