Economics of inequality and poverty
Are equality and equity the same?
How is income inequality measureed?
Equality
Equity
Economic outcomes are the same for different people or different social groups
fairness
Everyone should be given the same opportunities to succeed despite their differences
Inequality
Economists generally agree that some degree of inequality is necessary within a market economy
Inequalities in outcomes
Inequality of opportunity
provides incentive to work harder & gain better education
encourages entrepreneurship
income & wealth
based on circumstances at birth
a person simply cannot earn as much, or afford to buy any assets simply because they do not have the same opportunities
gender
ethnicity
socio-economic background
birthplace
parents' profession
Lorenz curve
using household income data
households are ranked in ascending order of income levels & the share of total income going to groups of households is calculated
Gini index
line of absolute equality indicates a perfectly equal distribution of income
the farther away the country's curve is from the line of absolute equality, the more unequal is the distribution of income
uses
compare 2 or more countries in terms of income distribution
compare the change in income distribution for a single country over time
the higher the Gini index, the more unequal is the distribution of income
however, there is no hard and fast correlation between the level of development of a country measured by its HDI and its Gini index
ratio of the area between the lines of equality and a country's Lorenz curve to the total area under the line of absolute equality
derived from the Lorenz curve