update the renz a) Draw two Lorenz curves on the same graph, choose the year in Table A-4 with the highest Gini and the year with the lowest Gini. b) This is data on pre-tax income. The US has a progressive income tax. Explain what this means and sketch a third Lorenz curve that shows post-tax distribution. (Sketch means show the direction of the change, don't worry about exact numbers.) c) Choose two other statistics from the report in the above link that are interesting and describe what they tell you about inequality or poverty (be sure to identify if the statistic is fundamentally about inequality or poverty). 2) Chapter 16: Risk, Information & Insurance (6 points) I Imagine that you can divide houses into two groups: those that are likely to flood and those that are not. For the purpose of this example, say that 20% of the group of 1,000 houses have a high likelihood of flooding and these houses have a 1 in 50 chance of flooding in the next year. The other 80% of houses have a 1 in 200 chance of flooding in the next year. The insurance company is selling a policy that will pay $100,000 to any house that floods. a) If the insurance company were selling flood insurance to each group, what would be the actuarially fair premium for each group? b) If the insurance company were offering flood insurance to the entire group, but could not find out about the risk of flooding, what would be the actuarially fair premium for the group as a whole? c) What will happen to the insurance company if it tries to charge the actuarially fair premium to the group as a whole rather than to each group separately? Imagine that you can divide houses into two groups: those that are likely to flood and those that are not. For the purpose of this example, say that 20% of the group of 1,000 houses have a high likelihood of flooding and these houses have a 1 in 50 chance of flooding in the next year. The other 80% of houses have a 1 in 200 chance of flooding in the next year. The insurance company is selling a policy that will pay $100,000 to any house that floods. a) If the insurance company were selling flood insurance to each group, what would be the actuarially fair premium for each group? b) If the insurance company were offering flood insurance to the entire group, but could not find out about the risk of flooding, what would be the actuarially fair premium for the group as a whole? c) What will happen to the insurance company if it tries to charge the actuarially fair premium to the group as a whole rather than to each group separately? 3) Positive vs normative analysis (6 points) a) Identify if the following statements are positive or normative statements and briefly explain. i) ii) Rent control lowers the share of income that families must spend on housing. Rent control should be expanded to help low income families afford housing. The minimum wage is too low and does not provide a sufficient income for a family of four. iii) iv) If you raise the minimum wage, a standard supply & demand model predicts an increase in unemployment. v) Automatic enrollment in retirement savings accounts increase the number of people participating. vi) We need to implement more automatic enrollment policies to help people save for retirement. b) Write one positive and one normative statement about income inequality and tax policy. c) Identify at least one positive and one normative statement in this article: https://www.nytimes.com/2020/11/27/health/biden-senior-citizens.html?referringSourc e-articleShare