The following table shows income distribution data for 2015 and 2020 from the World Bank in Colombia and Dominican Republic respectivelyQuintileColombiaColombiaDominican RepublicDominican Republic 2015202020152020Lowest 20%3.82.856.2Second 20%7.97.49.310.7Third 20%12.511.913.814.9Fourth 20%2019.620.921.7Highest 20%55.858.35146.51. Consider a 12-person economy where the individuals are employed equally across thesectors. If the modern urban wage = £8, the informal urban wage = £3, and the traditionrural income = £1, what is the squared poverty gap index (P2) given that the poverty line= £1.25? Suppose that rural income now rises to £2, other things being equal, how wouldyou characterise and show this type of growth?

Poverty gap can be defined as the ratio in which the average income of the poor falls below the…

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Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter17: Income, Poverty, And Health Care

Section: Chapter Questions

Problem 8P

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The following table shows income distribution data for 2015 and 2020 from the World Bank in Colombia and Dominican Republic respectively

Quintile	Colombia	Colombia	Dominican Republic	Dominican Republic
	2015	2020	2015	2020
Lowest 20%	3.8	2.8	5	6.2
Second 20%	7.9	7.4	9.3	10.7
Third 20%	12.5	11.9	13.8	14.9
Fourth 20%	20	19.6	20.9	21.7
Highest 20%	55.8	58.3	51	46.5

1. Consider a 12-person economy where the individuals are employed equally across the
sectors. If the modern urban wage = £8, the informal urban wage = £3, and the tradition
rural income = £1, what is the squared poverty gap index (P2) given that the poverty line
= £1.25? Suppose that rural income now rises to £2, other things being equal, how would
you characterise and show this type of growth?

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