Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 20, Problem 4PA
Subpart (a):
To determine
The difference in the income distribution and inequality.
Subpart (b):
To determine
The difference in the income distribution and inequality.
Subpart (c):
To determine
The difference in the income distribution and inequality.
Subpart (d):
To determine
The difference in the income distribution and inequality.
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Students have asked these similar questions
If there are two communities, one with ten families have incomes of $100,000 each and ten families have incomes of $20,000 each. In the other community, ten families have incomes of $250,000 each and ten families have incomes of $25,000 each.
Which community is the distribution of income more unequal? In which community is the problem of poverty likely to be worse?Which distribution of income would Rawls prefer? Explain.Which distribution of income do you prefer? Explain.Why might someone have the opposite preference?
In DevEconLand, there are 10 people. Four of them earn $1/day each, two earn $3/day each and the remaining four earn
$4/day each. If the poverty line is defined as $2/day, what is the headcount ratio, the total poverty gap ratio and the total
poverty gap squared ratio respectively?
Select one:
a. 1/5, 1/5 and 1/10 respectively.
b. 1/5, 2/5 and 1/5 respectively.
c. 2/5, 1/5 and 1/10 respectively.
d. None of the above.
Q5. Poverty measures
a. The Poverty Gap Index or Normalized Poverty Gap is the Average Poverty Gap divided
by the poverty line. Show that the poverty gap index is the FGT index with a = 1
b. A population that has a greater share of extreme poor among the poor will have a
higher P2, even if it has the same headcount ratio and poverty gap index as another
population. Explain.
c. Consider a population with four individuals with incomes y₁ = {7, 3, 8, 4} and a poverty
yi
line yp 5. Calculate Po, P₁, and P2.
=
d. What is the Multidimensional Poverty Index (MPI) and how is it a more improved
measure of poverty?
Chapter 20 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- If a family of three earned 20,000, would they be able to make ends meet given the official poverty threshold?arrow_forwardConsider two communities. In one community, ten families have incomes of $100,000 each and ten families have incomes of $20,000 each. In the other community, ten families have incomes of $250,000 each and ten families have incomes of $25,000 each. • In which community is the distribution of income more unequal? In which community is the problem of poverty likely to be worse? • Which distribution of income would Rawls prefer? Explain. • Which distribution of income do you prefer? Explain. • Why might someone have the opposite preference?arrow_forwardA5. Suppose that the initial rural distribution of income is (1, 2, 3, 4) while the initial urban distribution is (3, 4). The poverty line is 2, so the overall poverty rate (headcount index) is 1/3. Now imagine that all of the rural poor move to urban areas and each of them gains 20% in real income. Verify that the overall poverty rate falls to 1/6, yet the urban poverty rate rises from zero to 1/4.arrow_forward
- a. Is the presence of an underground economy likely to result in a Gini coefficient that overstates or understates poverty? b. Consider a simple economy where 90 percent of citizens report an annual income of $10,000 while the remaining 10 percent report an annual income of $110,000. What is the Gini coefficient associated with this economy? c. Suppose the poorest 90 percent of citizens actually have an income of $15,000 because each receives $5,000 of unreported income from the underground economy. What is the Gini coefficient now?arrow_forwardThe following table summarizes the income distribution for the town of Perkopia, which has a population of 10,000 people. Every individual within an income group earns the same income, and the total annual income in the economy is $500,000,000. Suppose that in 2006, the poverty line is set at an annual income of $42,350 for an individual. Year 2000 2006 2012 2018 Lowest Quintile 3.0 3.4 3.8 5.0 Share of Total Income in Perkopia (Percent) Middle Quintile Fourth Quintile Second Quintile 8.6 9.4 9.7 11.0 The data in the table suggest that there was 14.0 14.6 15.2 15.5 21.9 22.4 22.9 25.0 Highest Quintile 52.5 50.2 48.4 43.5 income inequality from 2000 to 2018.arrow_forwardComplete the following table to help you determine the poverty rate in Perkopia in 2019. To do this, begin by determining the total income of all individuals in each quintile using the fact that total annual income in the economy is $500,000,000. Next, determine the income of an individual in each quintile by dividing the total income of that quintile by the number of people in that quintile. (Hint: Recall that Perkopia has a population of 10,000 people.) Finally, determine whether the individual income for each quintile falls below the poverty line of $28,000. Quintile Share of Income in 2019 Total Income Individual Income Below Poverty Line? (Percent) (Dollars) (Dollars) Lowest 4.0 Second 10.0 Middle 16.0 Fourth 23.0 Highest 47.0 Using the information in this table, the poverty rate in Perkopia in 2019 is . Suppose that the government introduces a welfare program in…arrow_forward
- 1. Income inequality and the poverty rate The following table summarizes the income distribution for the town of Perkopia, which has a population of 10,000 people. Every individual within an income group earns the same income, and the total annual income in the economy is $500,000,000. Suppose that in 2019, the poverty line is set at an annual income of $40,850 for an individual. A Share of Total Income in Perkopia (Percent) Year Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile 2001 4.0 10.0 16.5 23.0 46.5 2007 3.8 9.7 15.0 22.5 49.0 2013 3.4 8.8 14.8 22.0 51.0 2019 3.0 8.2 14.0 21.8 53.0 The data in the table suggest that there was income inequality from 2001 to 2019.arrow_forwardSuppose that the economy of Loserville has the following distribution of income: first quintile 15% of aggregate income second quintile 20% of aggregate income third quintile 20% of aggregate income fourth quintile 20% of aggregate income fifth quintile 25% of aggregate income a. From the information provided, please derive a Lorenz Curve for Loserville. Show graphically. b. From the Lorenz Curve you have drawn, find the Gini Coefficient. c. How does Loserville compare to the United States economy?arrow_forwardExplain why the poverty gap ratio is the better target measure of poverty than the head- count ratio. Use diagrams to substantiate your answer. larrow_forward
- 1. Income inequality and the poverty rate The following table summarizes the income distribution for the town of Perkopia, which has a population of 10,000 people. Every individual within an income group earns the same income, and the total annual income in the economy is $500,000,000. Suppose that in 2004, the poverty line is set at an annual income of $25,300 for an individual. Note: This question uses quintiles, which are a statistical value of a data set that includes 20% of the population. This means that the population has been divided into fifths, where the first quintile is the lowest 20% of the values of the variable of interest, and so on to the fifth quintile, which is the highest 20% of the values. Year 1998 2004 2010 2016 Lowest Quintile 3.2 3.4 3.8 4.0 Share of Total Income in Perkopia (Percent) Middle Quintile Fourth Quintile Second Quintile 8.0 9.0 9.5 10.0 The data in the table suggest that there was 14.0 14.6 15.4 16.5 21.8 22.0 22.7 24.0 Highest Quintile 53.0 51.0…arrow_forwardWhich of the following statements about income inequality is true? a. A low average household income in a society suggests significant income inequality. b. A society with progressive income taxes will likely have a very unequal after-tax distribution of income. c. Low taxes on savings tend to lead to a more equitable distribution of after-tax income. d. Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes. e. Low tax rates on wealth will lead to less unequal income distributions.arrow_forwardPoverty and Income Distribution: End of Chapter Problems 4. Currently, the poverty threshold for a family of four is just over $25,000 a year. Among the given factors that affect poverty, indicate those that the official poverty threshold accounts for and those that it does not. Accounted for by the official poverty threshold Not accounted for by the official poverty threshold Answer Bank Differences in tax rates between different locales Inflation The cost of essential living expenses Changes in noncash benefits Geographical differences in the cost of livingarrow_forward
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