Question

The following table summarizes the income distribution for the town of Perkopia, which has a population of 10,000 people. Every individual within an income group earns the same income, and the total annual income in the economy is $500,000,000. Suppose that in 2013, the poverty line is set at an annual income of $42,050 for an individual.

Year
Share of Total Income in Perkopia
(Percent)
Lowest Quintile
Second Quintile
Middle Quintile
Fourth Quintile
Highest Quintile
2001 4.0 10.0 16.0 23.0 47.0
2007 3.7 9.5 15.4 22.8 48.6
2013 3.3 9.0 14.6 22.0 51.1
2019 3.0 8.1 14.0 21.5 53.4
The data in the table suggest that there was income inequality from 2001 to 2019.

Answer 1

The question involves calculating income distribution for a group of 10 people, comparing their quintiles' income shares to that of the U.S. income distribution for 2005.

We are tasked with calculating the income distribution for a group of 10 individuals with varying annual incomes and comparing it to the income distribution data of the U.S. income distribution for a given year.

Firstly, we calculate the total income of the 10 individuals, then divide this sum into quintiles (groups of 2 people, since 10 divided by 5 quintiles equals 2 people per quintile), and calculate the proportion of total income for each quintile. From this, we can deduce the share of total income received by each quintile.

After calculating the shares, we then compare these figures with those from the U.S. data provided for 2005. This comparison will show whether the top and bottom quintiles in our sample have a greater or larger share of total income than those in the U.S. income distribution for 2005.