equity in the distribution of income

equality definition

refers to the extent to which income is distributed equally

• everyone should be treated the same

Equity definition

refers to income distribution which is fair

• everyone is treated fairly , given opportunities based on what they need

economic inequality definition

refers to the degree that people in a population differ in their ability to satisfy their economic needs

income inequality definition

arises from differences in how evenly income is distributed in a population. There is income inequality when there is a gap between the rich and the poor

wealth inequality

arises from differences in the amount of wealth people own

income definition

a flow concept , referring to the money an individual earns through work , investments or other sources measured over a period of time

• interest gained from investment + wages + passive income eg rental

• 
  

wealth definition

a stock concept that refers to total value of a person’s assets minus their debts.

• value of property + saving + total value of stock held + gold bar

• measure of net worth

indicators of income distribution/how to measure income distribution

1. income shares

2. Lorenz curve

3. gini coefficient

income shares

income can be distributed by quintiles (divided by 5) or deciles (divided by 10) of the population

quintiles

20% portions of a country’s population

• lowest quintile : poorest 20%

• highest quintile : richest 20%

quintile example + how to interpret data

• if there was perfectly equality each quintile would be 20%

• distribution of income is more equal when the poorest quintile receives a higher percentage share of income while the richest quintile receives a lower percentage share of income

• Brazil — the poorest 20% of households only receive 3.2% of total household income while the richest 20% receive 57.8% of total household income

• who has more equal income distribution?

Deciles

10% portions of the population

• lowest deciles : the poorest 10%

• highest deciles : the richest 10%

Lorenz curve

used to show the degree of income inequality in an economy

• plots the relationship between percentages of the population and the shares of income they receive

x axis and y axis of Lorenz curve

X - axis : shows the cumulative percentage of the total population divided up in the quintiles

Y - axis : shows the cumulative percentage of total income earned by the quintiles

diagonal line on Lorenz curve

line of absolute equality , indicating perfectly equal distribution

• must be 45 degrees + use ruler to draw

How to draw Lorenz Curve example , using statistics of Belarus and Brazil

further away = more unequal

Gini coefficient / Gini index

measures the income distribution of a country’s residents.

• 0-1.0 : perfect equality is at 0 , perfect inequality is at 1.0

• if given in percentage divide it by hundred to get a decimal

formula for Gini coefficient

It is a ratio of the area between the diagonal line and a country’s Lorenz curve to the total area under the diagonal line

• Area between diagonal and Lorenz curve / entire area under diagonal

• A/A+B

when the government implements policies to redistribute income , making distribution more equal (fall in inequality) , it is illustrated as

1. lower Gini + shift of a country’s Lorenz curve to the diagonal line (before and after the policy was implemented)

2. Reflects that after policy 24% —> 40% (provide stats of the diagram)

3. Always use the for income inequality and to prove whether the policy helps reduce Gini coefficient

Gini coefficient after accounting for govt transfer and taxes used to

to determine whether the Gini coefficient is falling