3. The accompanying table gives the distribution of income for a very small economy.
| Income | |
| Sephora | $39,000 |
| Kelly | 17,500 |
| Raul | 900,000 |
| Vijay | 15,000 |
| Oskar | 28,000 |
What is the mean income? What is the median income? Which measure is more representative of the income of the average person in the economy? Why?
To determine mean (or average) income, we take the total income of all individuals in this economy and divide it by the number of individuals. Mean income is ($39,000 + $17,500 + $900,000 + $15,000 + $28,000)/5 = $999,500/5 = $199,900. To determine median income, look at the accompanying table, which ranks the five individuals in order of their income.
| Income | |
| Vijay | $15,000 |
| Kelly | 17,500 |
| Oskar | 28,000 |
| Sephora | 39,000 |
| Raul | 900,000 |
The median income is the income of the individual in the exact middle of the income distribution: Oskar, with an income of $28,000. So the median income is $28,000.
Median income is more representative of the income of individuals in this economy: almost everyone earns income between $15,000 and $39,000, close to the median income of $28,000. Only Raul is the exception: it is his income that raises the mean income to $199,900, which is not representative of most incomes in this economy.
What income range defines the first quintile? The third quintile?
The first quintile is made up of the 20% (or one-fifth) of individuals with the lowest incomes in the economy. Vijay makes up the 20% of individuals with the lowest incomes. His income is $15,000, so that is the average income of the first quintile. Oskar makes up the 20% of individuals with the third-lowest incomes. His income is $28,000, so that is the average income of the third quintile.