A-LevelEconomicsThe macroeconomy9708/41 · Oct/Nov 2019 · Q526 Marks

Explain why economists use a Lorenz curve and a Gini co-efficient and comment on likely government policy implications if a country's Gini co-efficient increased from 0.34 to 0.68.

(a)Explain why economists use a Lorenz curve and a Gini co-efficient and comment on likely government policy implications if a country's Gini co-efficient increased from 0.34 to 0.68.[13]
(b)With the help of a diagram analyse what is likely to happen to a worker's transfer earnings and economic rent if a perfectly competitive labour market is replaced by a monopsony.[13]

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Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

[13] Lorenz curve shows the distribution of income in a country; Gini co-efficient is a measure of the inequality of distribution.
[13] The co-efficient ranges between 0 and 1; higher the figure the more unequal the distribution.
[13] Increase in inequality might lead to the conclusion that the government needs to take corrective policy action by means of taxes, transfer payments, tax relief.
[13] Explanation of transfer earnings and economic rent; monopsony is likely to result in a fall in numbers employed, a fall in the wage rate and a fall in both transfer earnings and economic rent.
[13] Use of an appropriate diagram.

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