Chapter 10. Lorenz Curve and Gini Coefficient Measure distribution of thing your interested in. E.g.   Share of largest firms in an oligopolistic industry,

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Presentation transcript:

Chapter 10

Lorenz Curve and Gini Coefficient Measure distribution of thing your interested in. E.g.   Share of largest firms in an oligopolistic industry, e.g share of top eight, sixteen etc   distribution of income in an economy – –Work with example of Distribution of Income Measure distribution of thing your interested in. E.g.   Share of largest firms in an oligopolistic industry, e.g share of top eight, sixteen etc   distribution of income in an economy – –Work with example of Distribution of Income

Lorenz curve O 100 O Line of complete equality Percentage share of national income (cumulative) Percentage of population

INEQUALITY AND POVERTY Distribution in the UK – –size distribution – –Looking at Quintile Groups:   Divide population into 5 equal groups (by number of people) Distribution in the UK – –size distribution – –Looking at Quintile Groups:   Divide population into 5 equal groups (by number of people)

Size distribution of UK income by quintile group of households: 1997/8 Bottom 20% Next 20% Middle 20% Next 20% Top 20% 15% 25% 51% 7% 2% Income before taxes and benefits

Size distribution of UK income by quintile group of households: 1997/8 Bottom 20% Next 20% Middle 20% Next 20% Top 20% 15% 25% 51% 7% 2% Bottom 20% Next 20% Middle 20% Next 20% Top 20% 11% 16% 22% 44% 7% Income before taxes and benefits Income after taxes and benefits

O 100 O Line of complete equality Lorenz curve Percentage share of national income (cumulative) Percentage of population Lorenz curve

INEQUALITY AND POVERTY Measuring the size distribution of income – –Lorenz curves – –Gini coefficients Measuring the size distribution of income – –Lorenz curves – –Gini coefficients

Lorenz curve and Gini coefficient O 100 O Line of complete equality Lorenz curve A B Percentage share of national income (cumulative) Percentage of population Gini coefficient = A / (A + B)

Gini coefficient Gini=0: Complete equality Gini=1: Complete inequality If the Gini coefficient increases, will inequality always have increased ? Answer: We can’t say for sure…

Inequality higher and Gini coefficient higher O 100 O Line of complete equality Percentage share of national income (cumulative) Percentage of population L1L1 L2L2

Uncertain, poor worse off, higher incomes more evenly spread. Gini Coefficient ? O 100 O Line of complete equality Percentage share of national income (cumulative) Percentage of population L1L1 L2L2

Gini and Lorentz If the Lorentz curves “before” and “after” do not intersect and the Gini coefficient goes up, THEN there is an increase in inequality. But if the Lorentz curves intersect, we cannot say for sure what happened to inequality upon observing (only) that the Gini went up.