Chapter 15: Problem 14

How is the poverty rate calculated?

Short Answer

Expert verified

The poverty rate is calculated by first understanding the poverty line, which is the minimum income needed to meet basic needs. Then, family incomes are determined and compared to the poverty line for their household size and location. Families with income below the poverty line are considered to be living in poverty. To find the poverty rate, divide the number of people living in poverty by the total population and multiply by 100. The formula is: \[Poverty\: Rate = \frac{Number\: of\: People\: Living\: in\: Poverty}{Total\: Population} × 100\] A higher poverty rate indicates more economic inequality, while a lower rate suggests a more equitable distribution of resources.

Step by step solution

1. Understand the Poverty Line

The poverty line, also known as the poverty threshold, is the minimum level of income needed to meet basic needs such as food, clothing, and shelter. In most countries, poverty lines are determined by the government based on various factors, such as household size, geographical location, and inflation rates.

2. Determine Family Income

To calculate the poverty rate, first, we need to gather information about each family's income in the population. This data may come from various sources such as surveys, government records, or other reliable sources. Family income should include all resources available for meeting basic needs, including earnings, government assistance, and any other income receipts.

3. Compare Family Income to the Poverty Line

Once the family income has been determined, the next step is to compare each family's income to the poverty line for their corresponding household size and geographical location. Families whose total income falls below the poverty line are considered to be living in poverty.

4. Calculate the Percentage of People Living in Poverty

To calculate the poverty rate, divide the number of individuals living in poverty by the total population. Then, multiply the result by 100 to express the poverty rate as a percentage. The formula for calculating the poverty rate is: \[Poverty\: Rate = \frac{Number\: of\: People\: Living\: in\: Poverty}{Total\: Population} × 100\]

5. Interpret the Poverty Rate

The poverty rate is a commonly used indicator to measure the economic well-being of a population. A higher poverty rate suggests that more people within the population are unable to meet their basic needs and indicates a higher level of economic inequality. On the other hand, a lower poverty rate generally indicates a more equitable distribution of resources and better overall well-being. Keep in mind that the poverty rate is only one measure of financial well-being and should be used alongside other indicators to paint a broader picture of economic conditions.