For problems 1 -- 5 we will use data from the 2008 Mexico National Rural Household Survey (EncuestaNacional a HogaresRurales de México, acronym: ENHRUM) to study inequality and poverty in rural Mexico.

For problems 1  -- 5 we will use data from the 2008 Mexico National Rural Household Survey (EncuestaNacional a HogaresRurales de México, acronym: ENHRUM) to study inequality and poverty in rural Mexico.  This data set was collected by UC Davis and the Colegio de México.  The household data file called “Mexico Household Data” is available on StartSmite.  This data set contains the following variables for the 1,437 sampled households:

(A) ID:  The household identifying code(you don’t have to worry about this)

(B) y_i:The household’s income in 2007, excluding government transfers.  You will notice that the first (poorest) households actually had negative income in 2007, mostly due to agricultural and livestock losses.

(C)R_i:The rank of each household based on their income (i.e., The poorest is 1, the richest is 1,437).

(D) F(y_i):the fraction of all households with income at or below household i’sincome.

(E) T_i:The amount of income transferred from the government to household i. 

1.       What is the average household income for rural Mexico’s in 2007 excluding government transfers?  Report your answer in $US using the exchange rate of 10.8 Pesos per $1US.

2.       In the year of the survey, the per-capita food poverty line in rural Mexico was 7,596 pesos.  Based on this food poverty line, calculate the headcount poverty index and poverty gap.  Assume each household has a single member. Briefly explain what each one means:

a.   The Poverty Headcount Index

b.  TheTotal Poverty Gap