The following income distribution data are for Brazil. Quintile Percent Share Lo

Question

The following income distribution data are for Brazil.

Quintile

Percent Share

Lowest 20%

3.0%

Second quintile

6.9%

Third quintile

11.8%

Fourth quintile

19.6%

Highest 20%

58.7%

Highest 10%

43.0%

(a) What are the cumulative income distributions by quintiles?

(b) Explain what the Gini coefficient is.

(c) Brazil’s national income is about $300 billion. What is the approximate dollar income of the bottom 20%? Bottom 40%?

(d) Brazil’s population is approximately 150 million. Suppose that each household makes the average income for its quintile. What is the level of poverty if the poverty line is $400 per capita? Calculate the average income shortfall and the poverty gap

(e) Suppose one percent of national income were transferred from the richest 20% of households to the poorest 20% of households. Explain clearly what happens to inequality (discuss what happens to the percent share of income to each quintile)

(f) Under the same transfer, what is the effect on poverty? Calculate and discuss what happens the income shares, average income shortfall, and the poverty gap.

Quintile

Percent Share

Lowest 20%

3.0%

Second quintile

6.9%

Third quintile

11.8%

Fourth quintile

19.6%

Highest 20%

58.7%

Highest 10%

43.0%

Explanation / Answer

(1)

(2)

Gini coefficient is a measure of income distribution dispersion. It measures income inequality among citizens of a countty, and varies between 0 and 1. Perfect equality will have a coefficient of 0 and perfect inequality will be represented by a value of 1.

The Gini coefficient is represented by the Lorenz curve.

(3)

(i)

Dollar income of bottom 20% = 3% x 300 billion = $9 billion

(ii)

Dollar income of bottom 40% = (3 + 19.6)% x 400 billion = $90.4 billion

Outof 6 multipart questions, first 3 are answered.

Quintile % Share Cumulative % Share Q1 58.7 58.7 Q2 6.9 65.6 Q3 11.8 77.4 Q4 19.6 97 Q5 3 100

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