The U.S. Economy: Private and Public Sectors
ANSWERS TO END-OF-CHAPTER QUESTIONS
Distinguish between the functional and personal distribution of income.
Which is being referred
to in each of the following statements?
“The combined share of wage income and proprietary
income has remained remarkably stable at about 80 percent since the Second World War.”
relative income of the richest households is higher today than in 1970.”
The functional distribution of income shows the sources of income, i.e., as payments to the four
factors of production: labor, entrepreneurs, physical capital, and land (natural resources).
breakdown is: wages and salaries, proprietors’ income, corporate profits, interest, and rents.
There are five categories whereas there are only four factors of production, because proprietors’
income includes profits as well as wages, interest, and rents.
The personal distribution of income shows how income, regardless of its source, is divided by
quintiles among all the families in the country.
Whereas the worst-off 20 percent of families, the
lowest quintile, gets most of its income from wages and transfer payments, the best-off 20 percent
gets considerable income from profits, interest, and rent.
The first statement refers to the functional distribution of income; the second refers to the
personal distribution of income.
Assume that the five residents of Econoville receive incomes of $50, $75, $125,
$250, and $500.
Present the resulting personal distribution of income as a graph similar to Figure
Compare the incomes of the lowest and highest fifth of the income receivers.
The distribution of income is quite unequal.
The highest 20 percent of the residents receive 10
times more income than the lowest 20 percent.
Distinguish clearly between a plant, a firm, and an industry.
Contrast a vertically integrated firm,
a horizontally integrated firm, and a conglomerate. Cite an example of a horizontally integrated
firm from which you have recently made a purchase.