Question 2: Poverty and Inequality in Devoland Consider the following table summarizing the distribution of income...

 

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Question 2: Poverty and Inequality in Devoland Consider the following table summarizing the distribution of income in Devoland: Individual 1 Income (in econs) 1 2 10 3 42 4 58 5 73 6 97 7 166 8 230 9 491 10 604 (a) Suppose that the poverty gap is 2.15 and that there are 4 people below the poverty line. What must the poverty line be in Devoland? Show all your work. (b) Calculate the Head Count Index and the average poverty gap (c) Suppose that Devoland introduces a flat tax that taxes each one of the non-poor. The tax is equivalent to 2 econs. The tax revenues are then redistributed equally among the poor. Calculate the new Poverty Gap, average poverty gap and Head Count Index. What has happened to poverty after this tax and transfer? (d) Now, returning to the distribution of income in the table, suppose that individual 4 gives 3 econs to individual 3. Calculate the new Poverty Gap, Average Poverty Gap and the Head Count Index. What has happened to poverty after this transfer? Question 2: Poverty and Inequality in Devoland Consider the following table summarizing the distribution of income in Devoland: Individual 1 Income (in econs) 1 2 10 3 42 4 58 5 73 6 97 7 166 8 230 9 491 10 604 (a) Suppose that the poverty gap is 2.15 and that there are 4 people below the poverty line. What must the poverty line be in Devoland? Show all your work. (b) Calculate the Head Count Index and the average poverty gap (c) Suppose that Devoland introduces a flat tax that taxes each one of the non-poor. The tax is equivalent to 2 econs. The tax revenues are then redistributed equally among the poor. Calculate the new Poverty Gap, average poverty gap and Head Count Index. What has happened to poverty after this tax and transfer? (d) Now, returning to the distribution of income in the table, suppose that individual 4 gives 3 econs to individual 3. Calculate the new Poverty Gap, Average Poverty Gap and the Head Count Index. What has happened to poverty after this transfer?