Extra Credit: Income Inequality and Poverty Hint for this problem: problems a an

Question

Extra Credit: Income Inequality and Poverty

Hint for this problem: problems a and b might be easier in Excel, and you can use an online calculator for part
c, for example http://www.peterrosenmai.com/lorenz-curve-graphing-tool-and-gini-coefficient-calculator

Suppose that there are two countries with 10 people each, who have incomes as follows:

Assume that the poverty line in both countries is $200.

a) Which country has a higher level of poverty when we use a poverty headcount measure? Which country has a higher level of poverty when we use a poverty gap measure?

b) Which country has a higher level of income inequality when we use the top 10%’s share of income as an inequality measure?

c) Which country has a higher level of income inequality when we use the Gini coefficient as a measure of income inequality?

Country 1 Person I Country 2 A1 B1 C1 D1 E1 F1 G1 H1 I1 J1 Income Person Income A2 B2 C2 D2 E2 F2 G2 H2 12 J2 100 125 175 350 450 600 775 1050 50 75 300 500 850 1250 2000 4000 8000 15000 3 2250

Explanation / Answer

country 1 is the poorest country

higher level of income inequality is for country 2

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