Why is median income usually lower than mean income?

Income distributions are skewed to the right by a small number of very high earners, who pull the mean upward but have no effect on the middle of the distribution.

Explain why the median is the better guide to the income of a typical household.

The median is unaffected by extreme values at the top, so it describes the household in the middle rather than an average distorted by the very rich.

What does a widening gap between mean and median income tell you?

It shows that income growth is concentrated at the top of the distribution, so inequality is rising even though the average is going up.

Edexcel A-Level Economics B 9EB0

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Life in a Global Economy

Mean and median incomes

3 things to know
Papers 2 and 3

Overview

Calculating mean and median income, why the median is usually lower and a better guide to the typical household, a widening gap between them, rising mean income that households do not feel, choosing a measure for a retailer, relative poverty and the median, modal income, and comparing countries.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

How is mean income calculated?

Key term

What is median income?

Numbers

A firm's five employees earn £18,000, £20,000, £22,000, £25,000 and £115,000. Calculate the mean and the median.

Questions from this subtopic

Each one with the model answer underneath.

1
How is mean income calculated?
Model answer
Mean income is total income divided by the number of income recipients.
2
What is median income?
Model answer
Median income is the income of the middle person when everyone is ranked from lowest to highest, so half the population earns more and half earns less.
3
Why is median income usually lower than mean income?
Model answer
Income distributions are skewed to the right by a small number of very high earners, who pull the mean upward but have no effect on the middle of the distribution.
4
A firm's five employees earn £18,000, £20,000, £22,000, £25,000 and £115,000. Calculate the mean and the median.
Model answer
The mean is £40,000 and the median is £22,000.
5
Explain why the median is the better guide to the income of a typical household.
Model answer
The median is unaffected by extreme values at the top, so it describes the household in the middle rather than an average distorted by the very rich.
6
What does a widening gap between mean and median income tell you?
Model answer
It shows that income growth is concentrated at the top of the distribution, so inequality is rising even though the average is going up.

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ABorrowing becomes dearer and saving more rewarding.

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