1. Assume Al, Beth, Carol, David, and Ed receive incomes of $500, $250, $125, $75, and $50 respectively. Construct and interpret a Lorenz curve for this five person economy. What percentage of total income is received by the richest and by the poorest quintiles? 2. Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain. 3. How do government statisticians determine the poverty rate? How could the poverty rate fall while the number of people in poverty rises? Which group in each of the following pairs has the highest poverty rate: (a) children or people age 65 or over? (b) African-Americans or foreign-born noncitizens? (c) Asians or Hispanics? 4. The table following contains three hypothetical public assistance plans.  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/1113273090/384253/KeyQuestion_Ch32_Graph01.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (36.0K)</a>]]>
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/1113273090/384253/KeyQuestion_Ch32_Graph02.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (37.0K)</a>]]>
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/1113273090/384253/KeyQuestion_Ch32_Graph03.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (41.0K)</a>]]>- Determine the minimum income, the benefit reduction rate, and the break even income for each plan.
- Which plan is the most costly? The least costly? Which plan is most effective in reducing poverty? The least effective? Which plan embodies the strongest disincentive to work? The strongest incentive to work?
- Use your answers in part b to explain the following statement: "The dilemma of public assistance is that you cannot bring families up to the poverty level and simultaneously preserve work incentives (without work requirements) and minimize program costs."
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