Consider two countries: a) In the first country there are 1,000 individuals; among them 500 earn $20,000 per month and the remaining 500 earn $400 per month
b) In the second country there are 1,000 people; among them 500 earn $12,000 per month and the remaining 500 people earn $600 per month. Which of the two countries has more inequality and which country is poorer of the two?
The per capita income in the first country is equal to (500 × 20,000 + 500 × 400)/1,000 = $10,200.
The per capita income in the second country is equal to (500 × 12,000 + 500 × 600)/1000 = 6,300.
From the per capita income figures we can conclude that the second country is poorer than the first country.
Now, ratio of rich-to-poor incomes in the first country = 10,000,000/20,000 = 50. The same ratio in the second country = 6,000,000/30,000 = 20.
It is seen that the ratio of high earners income to low earners income is much higher in the first country. Thus, inequality is more in the first country.
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If the government decreased urban welfare payments by a dollar for every dollar increase in farm subsidies, which of the following is the likely net effect?
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