Introduction to Economics Unit 9

Evidence people care about inequality

• Dictator Game

• Public Goods Game

• MRI (2010)

• Possible reasons

  • signalling to others we are prosocial

  • reciprocity preference

  • fear that inequality leads to bad social consequences

• Probably evolutionary process → human survival

Inequality

Occurs when there’s a difference between groups of individuals on one or more dimensions (height, income, food)

inequality ≠ inequity

inequity when inequality is deemend inequitable (unfair, unjust)

inequity → inequality

inequality is necessary, but not sufficient for inequity

• ex. grades in class

relative view

inequality is about proportional differences between incomes

• T10/B50

Implications: global inequality decreased in the world since 1980’s because income ratios between rich and poor have fallen, even though everyone got richer

absolute view

inequality is about absolute income gaps

• T10-B50

Implications: global inequality has increased over the past 40 years, because the absolute income gap has grown

3 measures of inequality

1. Income share ratios

2. Income gap

3. Gini coefficient derived from the Lorenz Curve

Lorenz Curve

plots the share of total income held by the poorest percent of the population

• the lower the curve, the more unequal distribution

• 45* = perfect equality

Limited/incomplete view from focusing only on income inequality

people find inequalities from circumstances UNFAIR, and from ambition FAIR

• Income is only one dimension of inequality

  • Wealth

    • wealth > income

  • Health

  • Education

  • Life chances

  • Opportunities

  • Access to public goods and services