Consider the distribution of income in the country A is given as follows:
(0.5, 0.5, 0.7, 0.7, 1.5, 1.5, 2, 3, 5, 6)
Let the poverty line be 1.
If 0.1 is transferred from person 2 to 3, the income distribution of country A becomes:
(0.5, 0.4, 0.8, 0.7, 1.5, 1.5, 3, 3, 6, 6).
Compare the poverty in both distributions:
Group of answer choices
The transfer mitigates poverty because more people now are closer to the poverty line.
The inequality between poor is reflected by the distributional sensitivity of P2 that shows more poverty in the new income distribution.
By using headcount and P1 measures, the poverty doesn’t change. However, by P2 measure, the poverty decreases. Thus, no clear-cut conclusion can be drawn about the change in poverty due to this transfer.
By monotonicity property that is satisfied by P1 and P2, there is less poverty in the new income distribution.