With reference to Extract 1, describe what has happened to income inequality in Bolivia.
Illustrate your answer with a Lorenz curve diagram. (8)
Income inequality exists when there is an unequal
distribution of income, rewards from the factors
of production, amongst individuals. The Lorenz
curve is a graphical representation of the degree
of income or wealth inequality within a society.
Since 2005, Bolivia has been seeing an
improvement in income inequality levels. Line 13
of extract 2 states that “Between 2005 and 2013,
2.6 million people joined the middle class, poverty
rates halved and the Gini coefficient fell from 0.6
to 0.48.” As more people entered the middle-class
population this brought an increased number of
individuals out of poverty, thus lowered income inequality in Bolivia. In the diagram above,
the 45° angle line represents equality. Initially the Lorenz Curve was further away from the
line of equality as there was more unequal distribution of income within Bolivia, but as
income inequality fell the Lorenz Curve shifted upwards from LC1 to LC2, closer to the line of
equality. Therefore, the fall in equality translated to a fall in the Gini coefficient, as
previously stated. However, given that the fall in income inequality was mainly due to
government intervention, it is likely that if the Bolivian government were to decrease the
level of government intervention this would lead to an increase in inequality. This occurs as
a result of the allocation of resources being left to market mechanisms. For instance, China
Russia and India are all examples of countries that saw a steep rise in income inequality as a
result of liberalisation. Hence, income inequality in Bolivia may only continue improving if
the government influences the allocation of resources.
Illustrate your answer with a Lorenz curve diagram. (8)
Income inequality exists when there is an unequal
distribution of income, rewards from the factors
of production, amongst individuals. The Lorenz
curve is a graphical representation of the degree
of income or wealth inequality within a society.
Since 2005, Bolivia has been seeing an
improvement in income inequality levels. Line 13
of extract 2 states that “Between 2005 and 2013,
2.6 million people joined the middle class, poverty
rates halved and the Gini coefficient fell from 0.6
to 0.48.” As more people entered the middle-class
population this brought an increased number of
individuals out of poverty, thus lowered income inequality in Bolivia. In the diagram above,
the 45° angle line represents equality. Initially the Lorenz Curve was further away from the
line of equality as there was more unequal distribution of income within Bolivia, but as
income inequality fell the Lorenz Curve shifted upwards from LC1 to LC2, closer to the line of
equality. Therefore, the fall in equality translated to a fall in the Gini coefficient, as
previously stated. However, given that the fall in income inequality was mainly due to
government intervention, it is likely that if the Bolivian government were to decrease the
level of government intervention this would lead to an increase in inequality. This occurs as
a result of the allocation of resources being left to market mechanisms. For instance, China
Russia and India are all examples of countries that saw a steep rise in income inequality as a
result of liberalisation. Hence, income inequality in Bolivia may only continue improving if
the government influences the allocation of resources.
