Question

Search this course Homework (Ch 20) 1. Income inequality and the poverty rate X 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 2013, the poverty line is set at an annual income of $43,275 for an individual, Year Lowest Quintile 3.0 2001 Share of Total Income in Perkopia (Percent) Second Quintile Middle Quintile Fourth Quintile 7.6 14.0 21.7 9.0 14.7 22.4 9.5 15.0 22.7 Highest Quintile 53.7 2007 3.3 ed 50.6 2013 3.9 2019 5.0 48.9 45.0 10.0 16.0 24.0 The data in the table suggest that there was Income inequality from 2001 to 2019. 7. ted Complete the following table to help you determine the poverty rate in Perkopia in 2013. 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 Perkope has a population of 10,000 people.) Pinally, determine whether the individual income for each quite fails below the poverty line of $43,275

Answer 1

	Share of income	Total income	individual income	Below poverty line
lowest	3.9	3.9%*500,000,000=19500,000	19500000/2000=9750	yes
second	9.5	47500000	23750	yes
middle	15	75000000	37500	yes
fourth	22.7	113500000	56750	no
highest	48.9	244500000	122250	no

Total Income=50000000* share of income

Individual income=Total income/2000

Poverty line is $43275

Blank 1. The date in the table suggest that there was DECREASING income inequality.

reason- Rich has become poorer and poor has become richer. So the income inequality has fallen.

2. poverty rate in Perkopia is 60%

reason- 3 quintile out of 5 are below poverty line.

So poverty rate=(3/5)*100=60%

3. Poverty rate after introduction of welfare program= 40%

Reason- Third quintile income will increase from $37500 to $37500+$8000= $45500

This is above the poverty line.

So new poverty rate=(2/5)*100=40%

4. All three statements are correct.

Sharon would gain more income by accepting the government offer.

If Sharon feels that in the long run it is beneficial to accept the overtime, he may choose to do so.

$8000 aid is an incentive for Sharon to work.

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