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Chapter 15: Q. 6 (page 377)

A group of 10 people have the following annual incomes: \(24,000, \)18,000, \(50,000, \)100,000, \(12,000,

\)36,000, \(80,000, \)10,000, \(24,000, \)16,000. Calculate the share of total income that each quintile receives from this

income distribution. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution?

Short Answer

Expert verified

Compared to the top and bottom quintiles of the U.S. income distribution, the bottom quintile in this distribution has a greater share of total income and the top quintile in this distribution has a smaller share of the total income.

Step by step solution

01

Step 1. Given information

A group of 10 people have the following annual incomes: $24,000, $18,000, $50,000, $100,000, $12,000,

$36,000, $80,000, $10,000, $24,000, $16,000.

02

Step 2. Calculation of quintiles

IncomesIncomes in the ascending orderFive groups of incomeQuintilesShare of total income
$24,000$10,000


$18,000$12,000$10,000+$12,000$22,0006%
$50,000$16,000


$100,000$18,000$16,000+$18,000
$34,0009.2%
$12,000$24,000


$36,000$24,000$24,000+$24,000
$48,00013%
$80,000$36,000


$10,000$50,000$36,000+$50,000
$86,00023.2%
$24,000$80,000


$16,000$100,000$80,000+$100,000
$180,00048.6%
TOTAL

$370,000

We can see from the above table that compared to the top and bottom quintiles of the U.S. income distribution, the bottom quintile in this distribution has a greater share of total income and the top quintile in this distribution has a smaller share of the total income, that is, income inequality is lower in this income distribution comparing to that of the US income distribution.

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Most popular questions from this chapter

Suppose there are two possible income distributions in a society of ten people. In the first distribution, nine people would have incomes of \(30,000 and one person would have an income of \)10,000. In the second distribution, all ten people would have incomes of $25,000.

a. If the society had the first income distribution, what would be the utilitarian argument for redistributing income?

b. Which income distribution would Rawls consider more equitable? Explain.

c. Which income distribution would Nozick consider more equitable? Explain.

What are some reasons why a certain degree of

inequality of income would be expected in a market

economy?

Many critics of government programs to help low-

income individuals argue that these programs create a poverty trap. Explain how programs such as TANF, EITC, SNAP, and Medicaid will affect low-income and whether or not you think these programs will benefit families and children.

What goods and services would you include in an

estimate of the basic necessities for a family of four?

The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Lets say the program costs \(10,000 per recipient family.

a. If the government gave each recipient family a \)10,000 check instead of enrolling them in the Medicaid program, do you think that most of these families would spend that money to purchase health insurance? Why? (Recall that the poverty level for a family of four is about $25,000.)

b. How does your answer to part (a) affect your view about whether we should determine the poverty rate by valuing in-kind transfers at the price the government pays for them? Explain.

c. How does your answer to part (a) affect your view about whether we should provide assistance to the poor in the form of cash transfers or in-kind transfers? Explain.
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