Question

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 2016, the poverty line is set at an annual income of $40,700 for an individual. Share of Total Income in Perkopia (Percent) Fourth Quintile Second Quintile Middle Quintile Highest Quintile Year Lowest Quintile 24.0 44.0 5.0 11.0 16.0 1998 48.5 9.7 15.2 22.8 2004 3.8 22.4 50.6 3.3 9.0 14.7 2010 8.2 14.0 21.6 53.0 2016 3.2 998 to 2016. The data in the table suggest that there was income inequality from 19 Complete the following table to help you determine the poverty rate in Perkopia in 2016. 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 $50o.000,000, Next, determine the income of an

Answer 1

The data in the table suggests that there was an increase in income inequality.

Poverty line = 40700

Quintile	Share	Total income(500000000*share)	Individual income(total income/2000)	Below Poverty level
Lowest	3.2	16000000	8000	Yes
Second	8.2	41000000	20500	Yes
Middle	14	70000000	35000	Yes
Fourth	21.6	108000000	54000	No
Highest	53	265000000	132500	No

poverty rate = 3/5*100 = 60%

With the transfer payment of 2000, the top 3 quintiles will still stay under the poverty line so poverty rate after the introduction of the welfare payment = 3/5*100 = 60%

All the given statements are correct.