The U.S. Bureau of Labor Statistics periodically

The U.S. Bureau of Labor Statistics periodically

Subject: General Questions    / General General Questions
Question

3. The U.S. Bureau of Labor Statistics periodically gathers data on household budgets to compile the consumer price index. The tables below report total current consumption expenditures and expenditures on certain major categories of goods for five different income groups in the United States for 2011. Group A is the lowest income quintile (lowest 20%) and Group E is the highest income quintile (highest 20%).

Table 1: Expenditures by Category for Various Income Groups in 2011

Income Group

A

B

C

D

E

Alcoholic Beverages 170 265 324 528 994

Apparel and Services 850 1140 1453 1988 3266

Cash Contribution 687 931 1311 1910 3766

Education 807 474 562 827 2585

Entertainment 981 1622 2121 3107 5027

Food away from home 1099 1608 2125 3103 5163

Food at home 2448 3051 3496 4364 5828

Health care 1489 2611 3319 3994 5149

Housing 8771 12136 14944 18840 29321

Personal care 270 408 549 742 1202

Personal insurance and pensions 422 1693 3505 6431 15068

Tobacco 316 359 409 403 266

Gifts 429 541 635 1124 2458

Transportation 3256 5142 7592 10205 15264

Average Before-tax Income 9805 27117 46190 74019 161292

Average Annual Expenditures 22001 32092 42403 57460 94551

a. Complete Tables 2a and 2b. Use either Before-tax Income or Average Annual Expenditures as the denominator, as directed. (Consider cutting and pasting into Excel).

b. Which goods are normal goods with respect to before-tax income? With respect to average annual expenditures? (See index in Varian to locate definitions of types of goods in textbook.)

c. Which goods are luxury goods with respect to before-tax income? With respect to Average annual expenditures? At which changes in income/expenditure level?

d. Which of these goods satisfy your textbook’s definition of necessity goods? Inferior goods? At what changes in income/expenditure levels?

e. If there are differences in answers to 3b to 3d by definition of income (i.e., Total annual Expenditures vs Before-tax income), why might these differences exist?

Table 2a: Percent Allocation of Before-tax Income

Income Group

A

B

C

D

E

Alcoholic Beverages

Apparel and Services

Cash Contribution

Education

Entertainment

Food away from home

Food at home

Health care

Housing

Personal care

Personal taxes

Tobacco

Gifts

Transportation

Before-tax Income

100%

100%

100%

100%

100%

Table 2b: Percent Allocation of Annual Average Expenditures

Income Group

A

B

C

D

E

Alcoholic Beverages

Apparel and Services

Cash Contribution

Education

Entertainment

Food away from home

Food at home

Health care

Housing

Personal care

Personal taxes

Tobacco

Gifts

Transportation

Total Expenditures

100%

100%

100%

100%

100%