Poverty and Inequality

Income distribution for a 5-person economy with a poverty line of $5:

Person Income($) % Cumulative Population % Cumulative Income

1 1 20 4

2 3 40 16

3 4 60 32

4 7 80 60

5 10 100 100

1) You have just been given $3 of foreign aid. (think of the measures of poverty and inequality)

a) To reduce the share of the population in poverty, which measure would you target?

b) How would you distribute the aid to reduce the share of the population in poverty as much as possible? What is the measure you identified in (a) after this aid distribution?

c) From the absolute poorest in the society, which measure would you target?

d) How would you distribute the aid to help the absolute poorest in the society as much as possible? What is the measure you identified in (c) after this aid distribution?