1
Economics 375
Fall 2010
Economics of Poverty and Discrimination
Prof. Todd
Homework 1
ANSWER KEY
MEASURING POVERTY
1)
Imagine there are 10 households in the US in 2009.
The characteristics of the families
are shown in the table below.
None of the families contain people over age 65. Assume the
poverty threshold for a family composed of 2 adults and 2 children is $20,000.
** note, rounding at different stages of the calculation results in slightly different calculations – I
gave full credit for all correct calculations given rounding. If your thresholds in (5) or (6) were
incorrect, but the poverty rate given those thresholds was right, you received partial credit
STEP 1: CALCULATE EQUIVALENCE SCALES – (A + p*K)^ F
For 2 adults and 2 kids, p = 0.80, F = 0.75 : (2 +0.8*2)^0.75 = 2.61353
For family 1: (1 + 0.8*1)^0.75 = 1.000
STEP 2: MULTIPLY GIVEN THRESHOLD BY RATIO OF EQUIVALENCE SCALES –
Threshold for family 1 = (1.0 / 2.61353)*20,000 = 0.3826*20,000 = $7,652
(1)
Family
(2)
# of adults
(3)
# of kids
(4)
Family Income
(5)
2009 poverty
threshold
p = 0.80 and F = 0.75
(6)
2009 poverty
threshold
p = 0.80 and F = 0.5
1
1
0
$11,000
$7,652
$10,541
2
1
1
$3,896
$11,892
$14,142
3
1
1
$12,896
$11,892
$14,142
4
1
3
$30,307
$19,161
$19,437
5
2
0
$25,547
$12,870
$14,907
6
2
1
$16,680
$16,564
$17,638
7
2
2
$11,244
$20,000
$20,000
8
2
3
$40,000
$23,248
$22,111
9
3
0
$25,000
$17,444
$18,257
10
3
1
$27,045
$20,828
$20,548
a)
Using the NAS recommended equivalence scale, fill in the poverty threshold for each
family, in column (5) of the table above. Let p = 0.80 and F = 0.75
b)
What is the family poverty rate?
Families 2 and 7 are poor.
2/10 = 0.20 or 20%