WWS 300 Lecture Notes - Lecture 5: Lorenz Curve, Inferior Good, Normal Good

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Whenever you make a pigou-dalton transfer from a rich person to a poor person, it raises the lorenz curve. So, any inequality averse swf prefers a distribution that lorenz-dominates another (i. e. , its lorenz curve is everywhere above the other"s) for a given total pie. Generalized lorenz curve (generalized doesn"t actually mean anything. Relevant when the size of the pie changes and we want to assess the inequality and the social welfare. Computation: vertical axis expressed in absolute levels, not in % of the pie. Any paretian and inequality averse swf prefers a distribution that gl dominates another. Slide: labor supply without tax and transfers: A low wage rate is a not so steep slope. A high wage rate is a steep slope. Laissez-faire means you keep what you earn. For 2 dimensions, the direction of substitution is always predictable: e. g. , more leisure, less consumption. For more than 2 dimensions, complementarity with some goods is possible.

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