Exclusion of Two Borrowers in the One-Lender, Five-Borrower Model
Figure 9.19b illustrates a variation of the one-lender, five-borrower model where two of the five prospective borrowers are excluded from the credit market entirely, resulting in them earning no income. This scenario is analyzed under the condition that the lender's share of income (s) is at least 1/4, which ensures that the lender continues to be the individual with the highest income in the economy. This example allows for a comparison with the case where all five borrowers are able to secure loans. [2]
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Introduction to Microeconomics Course
CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Calculating the Gini Coefficient in the Two-Borrower Exclusion Model
Numerical Example: Gini Increase Due to Borrower Exclusion
Borrower Exclusion Increases Inequality for any Lender Share s < 1
Consider a simplified economy with one lender and five potential borrowers. Initially, all five borrowers receive loans and earn an income from their respective projects. Now, imagine a change where the lender can only provide loans to three of the borrowers. The two excluded borrowers are unable to undertake their projects and consequently earn zero income. Assuming the total income generated by the three active projects is distributed only among the lender and those three borrowers, what is the direct consequence of this change on the overall income distribution in this six-person economy?
Impact of Credit Market Access on Income Distribution
Analyzing Lender's Income Share in an Exclusionary Credit Market
In a one-lender, five-borrower model, if two borrowers are excluded from receiving loans and thus earn zero income, the overall income inequality in the economy is reduced because there are fewer borrowers sharing the project's profits with the lender.
Comparing Income Distributions in a Credit Market Model
In a simplified economic model with one lender and five potential borrowers, a scenario arises where only three borrowers can secure loans for their projects. Match each type of individual in this six-person economy to their corresponding economic outcome.
Evaluating the Impact of Credit Exclusion
Analyzing Income Shifts in a Credit Market
Evaluating a Policy Change in a Credit Market
In an economic model with one lender and five potential borrowers, a situation arises where two borrowers are denied loans and cannot undertake their projects, while the other three receive loans. The lender receives a portion of the income from each of the three successful projects. Arrange the following groups in order of their income, from lowest to highest.
Condition for Lender's Highest Income in the Two-Borrower Exclusion Model