Income Distribution and Welfare:
Income: the flow of wages, salaries and earnings from other sources in a period
Wealth: the stock of accumulated assets
Income distribution: the way in which national income is distributed among the population
of a country
Wealth distribution: the way in which the nation’s wealth is distributed among the
population of a country
Policy objective of even distribution of income: If there is a very unequal distribution of
income in society, some households and individuals may become vulnerable due to low
incomes and/or wealth and so a sense of social justice suggests that vulnerable groups in
society should be protected. There is also a link between the degree of inequality in society
and the rate of economic growth - economic growth may be impeded by the existence of
extreme poverty
Measuring Inequality:
The Lorenz Curve: a graphical way of depicting the distribution of income within a country -
shows how cumulative income increases with cumulative population. The closer a country’s
Lorenz curve to the line of perfect equality (theoretical line where every household had the
same income) , the more equal the distribution is.
The Gini Coefficient: this is an index that summarises
this relationship in a numerical way - a numerical
measure of the degree of inequality in society.
Calculated by obtaining the ratio of the area between
the equality line and the country’s Lorenz curve and the
whole area under the equality line: A / A+B
The closer the Gini coefficient is to 100, the further the
Lorenz curve is from equality and so the income
distribution is more unequal.
Absolute and Relative Poverty:
Absolute poverty: a situation of a household whose income is insufficient to purchase the
minimum bundle of goods and services needed for survival.
Relative poverty: a situation in which household income falls below 60% of median
adjusted household income in a country. This is used in countries like the UK where
Income: the flow of wages, salaries and earnings from other sources in a period
Wealth: the stock of accumulated assets
Income distribution: the way in which national income is distributed among the population
of a country
Wealth distribution: the way in which the nation’s wealth is distributed among the
population of a country
Policy objective of even distribution of income: If there is a very unequal distribution of
income in society, some households and individuals may become vulnerable due to low
incomes and/or wealth and so a sense of social justice suggests that vulnerable groups in
society should be protected. There is also a link between the degree of inequality in society
and the rate of economic growth - economic growth may be impeded by the existence of
extreme poverty
Measuring Inequality:
The Lorenz Curve: a graphical way of depicting the distribution of income within a country -
shows how cumulative income increases with cumulative population. The closer a country’s
Lorenz curve to the line of perfect equality (theoretical line where every household had the
same income) , the more equal the distribution is.
The Gini Coefficient: this is an index that summarises
this relationship in a numerical way - a numerical
measure of the degree of inequality in society.
Calculated by obtaining the ratio of the area between
the equality line and the country’s Lorenz curve and the
whole area under the equality line: A / A+B
The closer the Gini coefficient is to 100, the further the
Lorenz curve is from equality and so the income
distribution is more unequal.
Absolute and Relative Poverty:
Absolute poverty: a situation of a household whose income is insufficient to purchase the
minimum bundle of goods and services needed for survival.
Relative poverty: a situation in which household income falls below 60% of median
adjusted household income in a country. This is used in countries like the UK where
