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Comparing National Income Inequality
An economist is studying income distribution in two different countries. Based on the data provided below, which country exhibits greater income inequality? Justify your answer by calculating the ratio of the average income of the richest 10% to the average income of the poorest 10% for each country and explaining what the results mean.
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The Rich/Poor Ratio as a Measure of Inequality in the 2020 Distribution
Comparing National Income Inequality
In a hypothetical country, the average annual income for the wealthiest 10% of the population is $240,000, while the average annual income for the poorest 10% of the population is $12,000. Based on this information, what is the country's rich/poor ratio?
Consider a country where the rich/poor ratio, defined as the average income of the richest 10% divided by the average income of the poorest 10%, is currently 15. A new government policy is implemented that results in a 5% increase in the average income of the poorest 10% of the population, while the average income of the richest 10% remains unchanged. What will be the effect on the country's rich/poor ratio?
Country A and Country B both have a rich/poor ratio of 10. In Country A, the average income for the richest 10% of the population is $100,000 and for the poorest 10% is $10,000. In Country B, the average income for the richest 10% is $50,000 and for the poorest 10% is $5,000. Based solely on this information, which of the following statements is the most accurate conclusion?
True or False: A decrease in a country's rich/poor ratio, which compares the average income of the richest 10% to the poorest 10%, definitively indicates that the economic well-being of the poorest 10% has improved.
Limitations of the Rich/Poor Ratio
Critiquing the Rich/Poor Ratio as an Inequality Metric
An economic analyst is evaluating different policy outcomes to reduce a country's rich/poor ratio, which is defined as the average income of the richest 10% of the population divided by the average income of the poorest 10%. Which of the following scenarios would cause the largest decrease in this specific ratio?
Evaluating a Policy Metric
An economic report for a country states that its rich/poor ratio, defined as the average income of the richest 10% of the population divided by the average income of the poorest 10%, has increased over the past year. Which of the following scenarios is the only one that could explain this change?