Chapter 3.1, Problem 4R

Solution

Kind of products bought with disposable income is to be explained.

Disposable income is the income that a person is left with after paying all the taxes. Disposable income is a part of income that is available to spend. Disposable income is calculated as:

Disposable income = Personal income - Personal income taxes

Necessities products are bought with disposable income by the people. Necessities products such as food, shelter and clothing. These product is necessary for every person to survive. Let us assume that a family has a monthly income of $20000, and their effective income tax rate is 20% which is $4000. So, the disposable income of the family would be $20000 - $4000 = $16000.