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Chapter 10

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. Lorenz curve.

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Chapter 10

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  1. Chapter 10

  2. 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

  3. Lorenz curve 100 80 Line of complete equality 60 Percentage share of national income (cumulative) 40 20 O O 100 60 80 20 40 Percentage of population

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

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

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

  7. Lorenz curve 100 80 Line of complete equality 60 Percentage share of national income (cumulative) 40 Lorenz curve 20 O O 100 60 80 20 40 Percentage of population

  8. INEQUALITY AND POVERTY • Measuring the size distribution of income • Lorenz curves • Gini coefficients

  9. Lorenz curve and Gini coefficient 100 Gini coefficient = A / (A + B) 80 Line of complete equality 60 Percentage share of national income (cumulative) A 40 B Lorenz curve 20 O O 100 60 80 20 40 Percentage of population

  10. 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…

  11. Inequality higher and Gini coefficient higher 100 80 Line of complete equality 60 Percentage share of national income (cumulative) 40 L1 L2 20 O O 100 60 80 20 40 Percentage of population

  12. Uncertain, poor worse off, higher incomes more evenly spread. Gini Coefficient ? 100 80 Line of complete equality 60 Percentage share of national income (cumulative) L1 40 20 L2 O O 100 60 80 20 40 Percentage of population

  13. 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.

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