Income inequality is increasing over time and is evident from the recent data on distribution of income. The data of last two decades on Gini Index of household income show that there is an upward trend in the value of the index depicting gradual rise in income inequality. On the other hand, the Atkison Index of income inequality has also increased from 2016 to 2017, thus supporting the fact of rising income equality. The data on income dispersion also show that there is no improvement in income inequality because Theil Index is fluctuating and has increased from 0.393 in 2006 to 0.397 in 2017.

Answer 2

The occurrence of number of divorce under Law A and Law B depends upon the mutual benefits and cost that both husband and wife incur from divorce. In the case of Law A, there is no requirement of mutual consent that is the willing person can get divorce irrespective of the wish of the other. Alternatively, in the case of Law B, mutual consent is required for divorce to happen. Now, in Law A husband or wife is willing to get divorce, then in every case divorce will occur as no one has to depend on the decision of the other. Conversly, in Law B one person’s wish does not matter and the divorce will occur only when two person agree to each other terms such as alimony. However, alimony is the cost of divorce in Law B. If there is alimony, then number of divorce will be lower in Law B as husband and wife may get into conflict with the terms of alimony, and ultimately the case of divorce might be rejected. Therefore, divorce in Law A will be higher than Law B as long as there is cost of alimony. Thus, it can be concluded as per Coase Theorem that if there is no cost of divorce then the incidence of divorce will be same for both Law A and B.

Answer 3 

a)

From the above table it is seen that Lorenzo can produce 40 bushels of corn per acre while Neha can produce only 28 bushels of corn per acre. As Lorenzo is able to produce more corn per acre, Lorenzo enjoys an absolute advantage in production of Corn.

b)

From the given table it is seen that Lorenzo can produce 8 bushels of Rye per acre while Neha can produce 7 bushels of Rye per acre. As Lorenzo is able to produce more Rye per acre, Lorenzo enjoys an absolute advantage in production of Corn.

c)

For producing 1 bushels of rye, Lorenzo has to sacrifice 40/8 = 5 bushels of corn. Therefore, Lorenzo’s opportunity cost of producing 1 bushel of rye is 5 bushels of corn.

d)

In order to produce 1 bushel of rye, Neha has to forgo 28/7 = 4 bushels of corn. Therefore. Neha’s opportunity cost of producing 1 bushel of rye is 4 bushels of corn.

e)

The opportunity cost of rye for Lorenzo and Neha are 5 bushels and 4 bushels of corns respectively. As Neha has a lower opportunity cost for producing rye, Neha enjoys a comparative advantage in production of rye.

f)

The opportunity cost of corn for Lorenzo and Neha are 1/5 bushels and 1/4 bushels of rye respectively. As Lorenzo has a lower opportunity cost for producing corn, Lorenzo enjoys a comparative advantage in production of corn.

Self-Study Quiz 9

Self-Study Quiz 10

Test 2