Question

In: Economics

The table below shows the distribution of income in the U.S. in the year 1978. Table...

The table below shows the distribution of income in the U.S. in the year 1978.
Table 19.1

Percent Distribution of Aggregate Household Income in 1978, by Fifths of Households

Households

Percent of Income

Lowest Fifth
(under $6,391)

4.3

Second Fifth
($6,392 - $11,955)

10.3

Third Fifth
($11,956 - $18,122)

16.9

Fourth Fifth
($18,122 - $26,334)

24.7

Top Fifth
($26,335 and over)

43.9

Refer to Table 19.1. What percentage of income is received by the bottom 20% of the households?

a.

10.3%

b.

43.9%

c.

24.7%

d.

4.3%

e.

16.9%

According to Table 19.1, what percentage of income is received by the top 40% of the population?

a.

41.6%

b.

51.9%

c.

60.8%

d.

56.2%

e.

68.6%

Solutions

Expert Solution

In the table above households are already divided into quintile that means divided into five equal groups according to the distribution of values of a particular variable which is income of households in above question.So we can rewrite the table above as follows;

Households Percentage of income

Lowest fifth= 1/5= 20/100 = lowest 20% of group (under $6,391) 4.3

Second fifth = second lowest 20% of group ($6,392 - $11,955) 10.3

Third fifth = Third lowest/ middle 20% of group ($11,956 - $18,122) 16.9

Fourth Fifth = Fourth lowest/ second top 20% of group ($18,122 - $26,334) 24.7

Top Fifth = Top 20% of household group ($26,335 and over) 43.9

1). Percentage of income is received by the bottom 20% of the households or by lowest fifth households is 4.3 percent. Hence the correct option is (d).

2). Percentage of income is received by the top 40% of the population is equal to percentage of income received by top 20% and second top 20% of households. So, adding the percentage of income received by top fifth/top 20% of household group and fourth fifth/second top 20% of group we get the percentage of income is received by the top 40% of the population.

Thus, Percentage of income is received by the top 40% of the population

= percentage of income received by top fifth household group + percentage of income received by fourth fifth group

24.7% + 43.9% = 68.6%.

Hence, percentage of income is received by the top 40% of the population is 68.6%, so the correct option is (e).

Rahul Sunny answered 7 months ago
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