Question

On the remote island of Calma live Jack and Jill. They form its entire economy. They both work online and enjoy the solitude that island life brings them. Jack makes $40,000 per year and Jill makes $10,000 per year.

Instructions: Enter your value to two decimal places.

What is the Gini Ratio for Calma?

Answer 1

Calculation of Gini Coeffcient-

Step 1: Organize the data into the following table:

Fraction of Income	Fraction of Population	% of Population that is Richer	Score
0.20	0.50	0.50	0.102
0.80	0.50	0.00	0.4

Step 2: Fill in the “% of Population that is Richer” column by adding all the “Fraction of Population” terms below that row

Step 3: Compute “Score”. Score is given by: Score = Fraction of Income * (Fraction of Population + 2 * % of Population Richer)

Step 4: Add up all the terms in the “Score” column. Call that “Total”

Total = 0.102+0.4=0.502

Step 5: Gini Coefficient = 1 – Total.

Gini Coefficient = 1-0.502= 0.498