Inequality

• What is income?


  Any money received on a regular basis from work or investments
• what is income inequality


  the unequal distribution of income
• Draw a Lorenz curve and explain its significance.


  A Lorenz curve is used to show the degree of income inequality in an economy.

  The diagonal line in the diagram represents perfect equality in income distribution, as it shows that if income were perfectly equally distributed.

  The Lorenz curve plots the actual relationship between percentages of the population and the shares of income they receive.

  In general, the closer a Lorenz curve is to the diagonal representing perfect income equality, the greater is the equality in income distribution.

  
• What is the Gini coefficient?


  Measures income inequality within a country. Values between 0 (where everyone earns the same) and 1 (where one person earns all the money in a country)

  
• How is the Gini coefficient calculated?


  The area between the perfect-equality Lorenz curve and the actual Lorenz curve, all divided by the area under the perfect-equality Lorenz curve.