Chapter 21, Problem 15DQ

To determine

The average wealth.

Explanation of Solution

Table -1 shows the median and average family wealth and survey years from 1995-2010.

Table - 1

Year	Median	Average
1995	$84,000	$307,900
1998	98,100	386,700
2001	106,100	487,000
2004	107,200	517,100
2007	126,400	584,600
2010	77,300	498,800

The average wealth in 1995 can be calculated as follows:

$\begin{array}{l}\text{The average wealth of 1995 }=\frac{\text{Average}}{\text{Median}}\\ =\frac{\text{\$307,900}}{\text{\$84,000}}\\ =\text{ 3}\text{.67}\end{array}$

Hence, the average wealth was 3.67 times greater than median wealth in 1995.

The average wealth in 1998 can be calculated as follows.

$\begin{array}{l}\text{The average wealth of 1998 }=\frac{\text{Average}}{\text{Median}}\\ =\frac{\text{\$386,700}}{\text{\$98,100}}\\ =\text{ 3}\text{.94}\end{array}$

Hence, the average wealth was 3.94 times greater than median wealth in 1998.

The average wealth in 2001 can be calculated as follows:

$\begin{array}{l}\text{The average wealth of 2001 }=\frac{\text{Average}}{\text{Median}}\\ =\frac{\text{\$487,000}}{\text{\$106,100}}\\ =\text{ 4}\text{.59}\end{array}$

Hence, the average wealth was 4.95 times greater than median wealth in 2001.

The average wealth in 2004 can be calculated as follows.

$\begin{array}{l}\text{The average wealth of 2004 }=\frac{\text{Average}}{\text{Median}}\\ =\frac{\text{\$517,100}}{\text{\$107,200}}\\ =\text{ 4}\text{.82}\end{array}$

Hence, the average wealth was 4.82 times greater than median wealth in 2004.

The average wealth in 2007 can be calculated as follows:

$\begin{array}{l}\text{The average wealth of 2007 }=\frac{\text{Average}}{\text{Median}}\\ =\frac{\text{\$584,600}}{\text{\$126,400}}\\ =\text{ 4}\text{.63}\end{array}$

Hence, the average wealth was 4.63 times greater than median wealth in 2007.

The average wealth in 2010 can be calculated as follows.

$\begin{array}{l}\text{The average wealth of 2010 }=\frac{\text{Average}}{\text{Median}}\\ =\frac{\text{\$498,800}}{\text{\$77,300}}\\ =\text{ 6}\text{.45}\end{array}$

Hence, the average wealth was 6.45 times greater than median wealth in 2010.

After 1995, 10% of the top wealthy people have seen an increase in their wealth disproportionately in comparison to the reaming 90%. The reason for this has been higher inequality in income, gains from stock market and tax cut that help the wealthy to increase their wealth.

As we can find a disincentive in work for public assistance, similarly inheritance might have a negative incentive on whosoever receives it. At the same time, people who work hard and save money think that they should have the rights to pass on their wealth to their successors. So, instead of cancelling the tax it’s better to bring changes in the tax. The changes for example can be to increase the limit of the amount of wealth that is allowed to be inherited and then apply an estate tax.

Economics Concept Introduction

Concept Introduction:

Wealth: It is established by calculating the total market value of all physical and indefinable assets owned by subtracting these with all debts.