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Questions › DSE › DSE 2012 › Q30
2 marksEconomics of Growth and Development › Poverty, inequality and human development › Axioms and properties of inequality and poverty measuresModerateabout 3 min

DSE 2012 Question 30: Poverty, inequality and human development

Suppose that there are two agents in an economy with income x1x_{1}x1​ and x2x_{2}x2​. If the richer person transfers a portion of her income to the poorer person without changing the income ranking (that is the rich remains richer even after the transfer) then it is called a progressive transfer. Welfare of this economy is measured by a function W(x1,x2)W(x_{1},x_{2})W(x1​,x2​). WWW is a 'good' measure of social welfare if the social welfare increases due to a progressive transfer. Consider the following candidates for WWW; W1(x1,x2)=x1+x2W_{1}(x_{1},x_{2})=x_{1}+x_{2}W1​(x1​,x2​)=x1​+x2​, W2(x1,x2)=x1x2W_{2}(x_{1},x_{2})=x_{1}x_{2}W2​(x1​,x2​)=x1​x2​.

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Suppose that there are two agents in an economy with income x₁ and x₂. If the richer person transfers a portion of her income to the poorer person without changing the income ranking (that is the rich remains richer even after the transfer) then it is called a progressive transfer. Welfare of this economy is measured by a function W(x₁,x₂). W is a 'good' measure of social welfare if the social welfare increases due to a progressive transfer. Consider the following candidates for W; W₁(x₁,x₂)=x₁+x₂, W₂(x₁,x₂)=x₁x₂. (A) Only W₁ is a 'good' measure (B) Only W₂ is a 'good' measure (C) Both W₁ and W₂ are 'good' measures (D) Neither W₁ nor W₂ is a 'good' measure

Also written as: Suppose that there are two agents in an economy with income x_1 and x_2. If the richer person transfers a portion of her income to the poorer person without changing the income ranking (that is the rich remains richer even after the transfer) then it is called a progressive transfer. Welfare of this economy is measured by a function W(x_1,x_2). W is a 'good' measure of social welfare if the social welfare increases due to a progressive transfer. Consider the following candidates for W; W_1(x_1,x_2)=x_1+x_2, W_2(x_1,x_2)=x_1x_2.

Poverty, inequality and human development has come up 92 times in 7 exams since 2010.

What this question tests

This question is on Axioms and properties of inequality and poverty measures, part of Poverty, inequality and human development in Economics of Growth and Development.

The properties a good inequality or poverty measure should satisfy.

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