4.2.2 - Inequality

• Wealth refers to the total value of assets owned by the individual household, including real estate investments saving and possessions.
• Wealth inequality measures the unequal distribution of these assets among individuals or households.
• Income represents the flow of money received by individuals or households over a specific period, usually annually
• Income inequality measures the uneven distribution of income among individuals or households
• The lorenz curve is a graphical representation of income distribution in a population

  • It plots the cumulative percentage of income received by the lowest to the highest earners
  • A perfectly equal distribution forms a 45° line
  • The greater the deviation of Lorenz curve from the line of equality, the higher the income inequality.

  
• The Gini coefficient is a numerical Index that quantifies income inequality
• Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality)
• A higher Gini coefficient indicates greater income inequality
• Gini coefficient is calculated using the area between the lorenz curve and the line of equality
• Causes or Income and wealth inequality

  • Education
  • labour market
  • Wealth Accumulation
  • Goverment Policies
• Causes or Income and wealth inequality: Education

  • Disparties in access to quality education can lead to differences in skills and income
• Causes or Income and wealth inequality: Labour market

  • wage differentials based on skills, experience and demand for certain jobs contributes to income inequality
• Causes or Income and wealth inequality: wealth accumulation

  • Those with access to investment opportunities and assets accumacare more wealth over time
• How Gini coefficient is measured through the lorenz curve

  
• It is argued that equality can never be achieved in a capitalist society where the possibility of having more is important to encourage hard work. Without the incentive to gain more, people will not try hard or take risks since they have no

  reason to and this means the economy won't grow; inequality is essential for capitalism to work.
• A capitalist economy leads to income inequality because of wage differentials Wages vary as they are based on demand and supply, and demand and supply vary for different jobs