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 2000, the poverty income threshold, or poverty line, is set at an annual income of $42,350 for an individual.
| Year | Share of Total Income in Perkopia | ||||
|---|---|---|---|---|---|
| (Percent) | |||||
| Lowest Fifth | Second Fifth | Middle Fifth | Fourth Fifth | Highest Fifth | |
| 1994 | 3.0 | 8.6 | 14.0 | 21.9 | 52.5 |
| 2000 | 3.4 | 9.4 | 14.6 | 22.4 | 50.2 |
| 2006 | 3.8 | 9.7 | 15.2 | 22.9 | 48.4 |
| 2012 | 5.0 | 11.0 | 15.5 | 25.0 | 43.5 |
The data in the table suggest that there was income inequality from 1994 to 2012.
Complete the following table to help you determine the poverty rate in Perkopia in 2000. To do this, begin by determining the total income of all individuals in each fifth, using the fact that total annual income in the economy is $500,000,000. Next, determine the income of an individual in each fifth by dividing the total income of that fifth by the number of people in that fifth. ( Hint: Recall that Perkopia has a population of 10,000 people.) Finally, determine whether the individual income for each fifth falls below the poverty income threshold, or poverty line, of $42,350.
| Fifth | Share of Income in 2000 | Total Income | Individual Income | Below Poverty Line? |
|---|---|---|---|---|
| (Percent) | (Dollars) | (Dollars) | ||
| Lowest | 3.4 | |||
| Second | 9.4 | |||
| Middle | 14.6 | |||
| Fourth | 22.4 | |||
| Highest | 50.2 |
Using the information in the previous table, the poverty rate in Perkopia in 2000 is .
Suppose that the government introduces a welfare program in which any individual with an income of less than $42,350 per year receives a lump-sum transfer payment of $2,000 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 2000, the poverty rate after the introduction of the welfare program in Perkopia is .
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