Determine how expenditure patterns vary based on income level.

Determine how expenditure patterns vary based on income level.
Furthermore, you are to comment on the implications of such differences. You are expected to perform
additional research to illuminate those differences and booster your conclusions.
1. You will select two urban consumer units based on Income and report on outside urban areas
and all urban consumer units. This means that you can select from the columns listed less than
100,000, 100,000 to 250,000, 250,000 to 1,000,000, 1,000,000 to 2,500,000, 2,500,000 to
5,000,000, and 5 million or more.
2. Your first set of calculations should be average annual expenditures as a percentage of income
before taxes by major categories such as food, apparel, housing, transportation, and healthcare.
3. The United Nations has designated food, apparel, and housing as the minimum necessary to
sustain human life. What is the total amount spent on food, apparel, and housing? What is the
percentage of this spending as a percentage of income before taxes and as a percentage of
average annual expenditure?
4. The consumer expenditure survey compute spending in terms of consumer units. The poverty
line of the United States is computed in terms of households. This means that there can be more
than one consumer unit in a household. Therefore, to approximate the poverty line of the
United States in terms of consumer units we would take the annual expenditure on food and
multiply by three. For example, for all consumer units the total amount spent on food per year is
$7744. If we multiply this total by three we obtained $23,232 a year. Please compute the
poverty line for your selected urban areas using this method.
What would be the hourly wage needed to cover these expenditures?
5. The average minimum wage in the United States is $9.90 an hour. This ranges from a high of
$14.75 2 a low of $7.25. It is interesting to note that the official minimum wage in Georgia,
Alabama, and Mississippi is below the federal standard so occupations not subject to the federal
standard are paid less than $7.25 an hour. The average American worker will work for 1758
hours a year. Based on these numbers what is the average annual income before taxes of
minimum wage workers?
6. The consumer expenditure survey measures spending by consumer units and breaks down
income quintiles by these consumer units. Therefore, the lowest quintile in the consumer
expenditure survey is the 20% of consumer units that earned the lowest level of income. How
does spending differ between the lowest and fourth quintile?
7. Total together the spending by the lowest quintile on food, apparel, housing, transportation,
and health care for your urban areas. How does the spending compare to the minimum wage
and our estimated poverty line in your urban areas? Remember that incomes earned are subject
to taxes so that the disposable income available to workers is less than our computed incomes.
If there is a gap between the amount needed and the income earned how could this gap be
closed? If there is not a gap between the amount needed and the income earned, would this be
sufficient to live a quality life?
8. Examine the percentage of income and average expenditures in food, apparel, housing,
transportation, and health care between your two income categories. How do they differ?
What are the implications?
To Calculate a percentage:
To calculate a percentage, take the value of the item to be computed and divide it by the point of
comparison and then multiply by 100. In this calculation that would be average annual expenditures
divided by income before taxes. Once you have obtained that number you would multiply it by 100 to
obtain the percentage. For an example the average annual expenditure for all consumer units is $62,188
and income before taxes for all consumer units is $83,599. We would divide $62,188 by $83,599 to
obtain a value of 0.743884. We then multiply this number by 100 to obtain 74.39%. You can compare
the numbers that you computed for your population centers and the required outside urban area and all
urban consumer units to the answers provided below.
According to this measurement the lowest quintile spends 55.9% of the average on food, 52.9% of the
average on apparel, 57.39% of the average on housing, 44.42% of the average on transportation, and
53.40% of the average on health care. This means that the total level of expenditures on food for the
lowest quintile would be 55.9% of the average annual expenditures on food for all consumer units of
$7,744. If we multiply the average annual expenditure of $7744 by 55.9% we obtain a value of $4328.89
as the amount spent on food by the lowest quintile across all consumer units. In doing this
multiplication we convert the percentage to a decimal by dividing the percentage by 100. We then take
the resulting decimal and multiply it by the average annual expenditure on food to obtain the spending
by the lowest quintile. Do this for the categories of food, apparel, housing, transportation, and health
care.

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