Question

Using the information in this table, the poverty rate in Perkopia in 2004 is (10% / 20% / 40% / 50% / 60%).

Suppose that the government introduces a welfare program in which any individual with an income of less than $27,400 per year receives a lump-sum transfer payment of $10,000 from the government. Assume that, in the short run, there is no change in labor-supply behavior among the people in Perkopia.

In the year 2004, the poverty rate after the introduction of the welfare program in Perkopia is (10% / 20% / 40% / 50% / 60%).

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 $27,400 for an individual Share of Total Income in Perkopia (Percent) Year Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile 1998 2004 2010 2016 24.0 22.5 22.0 21.5 5.0 3.8 3.5 3.2 16.0 15.2 14.8 14.0 44.0 48.6 50.5 53.1 11.0 9.9 9.2 8.2 The data in the table suggest that there was income inequality from 1998 to 2016 no evidence of an increase in a decrease in no change in Complete the following table to help you determine the poverty rate in Perkopia in 2004. 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 $27,400 Share of Income in 2004 Total Income Individual Income Quintile Lowest Second Middle Fourth Highest (Percent) (Dollars) (Dollars,) Below Poverty Line? 9.9 15.2 22.5 48.6 Yes No Again, suppose the government introduces a welfare program in which any individual with an income of less than $27,400 receives a lump-sum transfer payment of $10,000 from the government. Valerie, a resident of Perkopia who currently earns an income of $26,942, has the opportunity to work overtime and earn an additional $1,100 this year. Which of the following statements are correct? Check all that apply. The $10,000 in aid presents a disincentive for Valerie to make more than $27,400 per year. Valerie may accept the overtime if she feels that taking it will increase the chances of her receiving a significant promotion. Valerie would gain more income by turning down the overtime than she would if she accepted the overtime.

Answer 1

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

Poverty line = 27400

Quintile	Share	Total income	Individual income	Below Poverty level
Lowest	3.8	19000000	9500	Yes
Second	9.9	49500000	24750	Yes
Middle	15.2	76000000	38000	No
Fourth	22.5	112500000	56250	No
Highest	48.6	243000000	121500	No

Using the information in this table, the poverty rate in Perkopia in 2004 is 2/5*100 = 40%

When the lump sum payment of 10000 is provided to the below poverty line groups.

In the year 2004, the poverty rate after the introduction of the welfare program in Perkopia is 1/5*100 = 20%

ll the given statements are correct.