Imagine an economy with only two people. Larry earns $20,000 per year, while Roger earns$80,000 per year. As shown in the following figure, the Lorenz curve for this twoperson economy consists of two line segments. The first runs from the origin to point a, while the second runs from point a to point b.

The desire to maximize profits can work against racial and other types of discrimination. To see this, consider two equally productive accountants named Ted and Jared. Ted is black, and Jared is white. Both can complete 10 audits per month.

a. Suppose that for any accounting firm that hires either Ted or Jared, all the other costs of performing an audit (going rate that must be paid to hire an accountant is $7,000 per month, how much will it cost an accounting firm to produce one audit if it hires either Ted orJared to do the work.

b. If the market price that accounting firms charge their clients for an audit is$1,800, what would the accounting profit per audit be for a firm that hired either Ted or Jared? What is the profit rate as a percentage?

c. Suppose that firm A dislikes hiring black accountants, while firm B is happy to hire them. So Ted ends up working at firm B rather than firm A. If Ted works 11 months per year, how many audits will he complete for firm B each year? How much in accounting profits will firm B earn each year from those audits?

d. Because firm A passed on hiring Ted because he was black, firm A is forgoing the profits it could have earned if it had hired Ted. If the firm is willing to forgo up to $5,000 per year in profit to avoid hiring blacks, by how many dollars will firm A regret its decision not to hire Ted?

Suppose that a society contains only two members, a lawyer named Monique and a handyman named James. Five years ago, Monique made $100,000 while James made$50,000. This year, Monique will make $300,000 while James will make$100,000. Which of the following statements about this society’s income distribution are true?

Assume that 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 quintile and by the poorest quintile?

Calculate the Gini ratio for this two-person economy using the geometric formulas for the area of a triangle $(=1 / 2 \times$ base $\times$ height $)$ and the area of a rectangle $(=$ base $\times$ height). (Hint: The area under the line segment from point $a$ to point $b$ can be thought of as the sum of the area of a particular triangle and the area of a particular rectangle.)

In $2010$ , many unskilled workers in the United States earned the federal minimum wage of $\$ 7.25$ per hour. By contrast, average earnings in $2010$ were about $22 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned$\$100$ or more per hour.

Assume that there are $20$ minimum-wage workers in the economy for each $\$100$-per-hour lawyer. Also assume that both lawyers and minimum-wage workers work the same number of hours per week. If everyone works $40$ hours per week, how much does a $\$100$-per-hour lawyer earn a week? How much does a minimum-wage worker earn a week?

The labor demand and supply data in the following table relate to a single occupation. Use them to answer the questions that follow. Base your answers on the taste-for-discrimination model

Suppose that the United States has a Gini ratio of 0.41 while Sweden has a Gini ratio of 0.31. Which country has a more equal distribution of income?

a. The United States.

b. Sweden.

c. They are actually equal.

Write the given argument as a chain of conditional propositions that have the form if $p$, then $q$. Then determine the validity of the entire argument.

Premise: $\qquad$ If taxes are increased, then taxpayers will have less disposable income. Premise: $\qquad$ With less disposable income, spending will decrease and the economy will slow down. Conclusion: $\quad$ A tax increase will slow down the economy.

What is the underground economy? Why do some countries have larger underground economies than other countries?

Identify two potential signs of weakness in the economy of the 1920s, and predict what might happen if those problems are not solved.

In 2015, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $76 billion. Given that there were about 322 million people living in the United States that year, how much could each person have received if Gates’s wealth had been divided equally among the population of the United States? (Hint: A billion is a 1 followed by 9 zeros while a million is a 1 followed by six zeros.)

If women are crowded into elementary education and away from fire fighting, wages in fire fighting will tend to be _______________ than if women weren’t crowded into elementary education.

a. Higher.

b. Lower

Which of the two types of government spending has the most impact on the economy? Explain your answer in a two-page paper.