# Homework 1 answer key - Economics 375 Economics of Poverty...

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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%

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2 c) How much would total income have to increase to lift them all out of poverty? Family 2’s income is \$\$7,996 below the poverty threshold and Family 7’s income is \$8,756 below the poverty threshold. Total = \$16,752 d) What is the depth of poverty? Only families 2 and 7 contribute to this index: ([( \$11,892- \$3,896)/ 11,892] + [(\$20,000- \$11,244)/ \$20,000]) / 10 = 0.11 (rounded to 2 significant digits at the end) e) What is the severity of poverty? Only families 2 and 7 contribute to this index:
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## This note was uploaded on 09/07/2011 for the course ECON 375 taught by Professor Staff during the Fall '10 term at Maryland.

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Homework 1 answer key - Economics 375 Economics of Poverty...

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