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Page 188 1a. Total income earned in Libra is $100 000 [= ($5000 + $10 000 + $15 000 + $30 000 + $40 000)]. The shares if income earned by the five households (ranked in reverse order) are 5% [= ($5000/$100 000) x 100%], 10% [= ($10 000/$100 000) x 100%], 15% [= ($15 000/$100 000) x 100%], 30% [= ($30 000/$100 000) x 100%], and 40% [= ($40 000/$100 000) x 100%]. b. The cumulative shares of income earned by each household (ranked in order) are 5%, 15% [= (5% + 10%)], 30% [= (5% + 10% + 15%)], 60% [= (5% + 10% + 15% + 30%)], 100% [= (5% + 10% + 15% + 30% + 40%)]. c. 2a. Statistics Canada defines LICO in reference to the average proportion of after-tax income that Canadians spend on food, clothing and shelter. LICO is the income level at which a household spends 20 percent more on these items than does the average Canadian. b. LICO is a relative measure of poverty, because it is an income cut-off that varies with Canadian prosperity. As the average Canadian household becomes more prosperous and spends a lower proportion of income on food, clothing and shelter, LICO expands in value, so that households in a greater income range are classified as poor. An absolute measure of poverty would stay constant regardless of changes in the average income of Canadians. Page 192 1a. The households’ incomes after transfer payments and taxes are (ranked in reverse order) $8750 [= ($5000 +$5000) – ($5000 x .25)], $12 500 [= ($10 000 +$5000) – ($10 000 x .25)], $16 250 [= ($15 000 +$5000) – ($15 000 x .25)], $27 500 [= ($30 000 +$5000) – ($30 000 x .25)], and $35 000 [= ($40 000 +$5000) – ($40 000 x .25)]. b. Total income received after transfer payments and taxes is still $100 000 [= ($8750 + $12 500 + $16 250 + $27 500 + $35 000)]. The shares of income received by the households (ranked in order) are now 8.75% [= ($8750/$100 000) x 100%], 12.5% [= ($12 500/$100 000) x 100%], 16.25% [= ($16 250/$100 000) x 100%], 27.5% [= ($27 500/$100 000) x 100%], and 35% [= ($35 000/$100 000) x 100%]. c. The cumulative shares of income received by the households (ranked in order) are now 8.75%, 21.25% [= (8.75% + 12.5%)], 37.5% [= (8.75% + 12.5% + 16.25%)], 65% [= (8.75% + 12.5% + 16.25% + 27.5%)], and 100% [= (8.75% + 12.5% + 16.25% + 27.5% + 35%)]. d. e. This distribution is more equal than it was before transfer payments and taxes, since the shares of income received by the poorest three households are higher (now 8.75%, 12.5% and 16.25%) than before (5%, 10%, and 15%), and the shares received by the richest two households (now 27.5% and 35% ) are lower than before (30% and 40%). |