Review Questions

1.
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Describe the principal features of the U.S. earnings distribution and how it has changed over time.
2.
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Intuitively, what is meant by an increase in earnings inequality? Why might the distribution of earnings provide an inadequate measure of actual inequality?
3.
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What is meant by the cumulative earnings distribution, F(w)? Can you explain why, F(0) = 0, F() = 1, and F(w) increases in w?
4.
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What is meant by the Gini coefficient and why does it measure inequality?
5.
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What are the basic economic principles that underly the superstar phenomenon?
6.
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In the text, it was remarked (perhaps somewhat mysteriously) that the superstar phenomenon can arise in settings in which the seller provides a service that possesses a discrete pass–fail nature. Explain why the market for lawyers (more precisely, for legal representation) can have this basic flavor and why it might lead to the superstar phenomenon.
7.
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Suppose that a given employer initially pays everyone the same salary, w. What do you think would happen if it introduced a piece-rate system?

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