Imagine a Third World country with 4 people, one of them earns $1,000 a year in
ID: 1100373 • Letter: I
Question
Imagine a Third World country with 4 people, one of them earns $1,000 a year in per capita income, another one earns $2,000, another one earns $4,000, and the top earners income is $5,000.
Now suppose that everyones income rises by 10 percent and the two poorest classes double in size as a result of reduced mortality rates among those most vulnerable to malnutrition and inadequate medical care, while the top classes remain the same size. In other words, there are six people in the country and two of them earn 10 percent more than $1,000 and two others earn 10 percent more than $2,000. The person who earned $4,000 before now earns 10% more than $4,000 and the person who earned $5,000 before now earns 10% more than $5,000. What is per capita income of this country now?
$_1_.
Explanation / Answer
net new income = $ ( 2 * 1000 * 1.1 + 2 * 2000 *1.1 + 4000 *1.1 + 5000*1.1 ) = $ 16500
Thus new per capita income = net income / total poluplation = 16500 / 6 = $ 2750 per capits