Consider an egalitarian and an elitist view on differences in educational attainment. First, suppose that all children have the same ability and differences in educational attainment occur solely due to differences in opportunity. Specifically, low-income parents face a higher interest rate due to poorer access to capital markets. Second, suppose that all children have the same access to capital markets, but that persons from low-income families are less able than those from high-income families.
Draw a graph of the market for human capital for children of low- versus high-income parents in the two scenarios. Draw the implied distribution of earnings under both scenarios.
Provide an economic rationale for why your parents might "reasonably" complain if you date a person from "across the tracks" (i.e., from a lower socio-economic status) or listen to "gangster rap" (i.e., music with anti-social lyrics).
Each year there is a European Song Contest in which each country from Europe enters a group. The groups perform a song on the night of the competition, which is judged by a panel of well-known persons from each country. The competition is televised through-out Europe and the results are typically quite close. Nonetheless, the winner, in addition to a monetary prize, often receives a record contract, whereas the other groups do not. Provide an economic rationale for this phenomenon.
Consider a country with 1,001 people. Everyone earns $20,000 per year except 1 person who earns $20 million.
What is the (approximate) Gini coefficient?
What is the 90 – 10 wage gap?
Why is it that the Gini coefficient in question 4 doesn't equal 1 as the income distribution appears to be as unequal as possible? Can you come up with an equation for the Gini coefficient assuming that all that changes is the $20,000 number (which is allowed to go from $0 to $500,000)?
