# Economics 1021 Chapter 19

## Economics 1021 Chapter 19

• Submitted By: UWOStang
• Date Submitted: 11/17/2014 7:26 AM
• Words: 751
• Page: 4

Chapter 19
Economic Inequality
Measuring Economic Inequality

Market income equals the wages, interest, rent, and profit earned in factor markets before
paying income taxes.
Total income equals market income plus cash payments to households by governments.
After-tax income equals total income minus tax payments by households to governments.
The income Lorenz curve graphs the cumulative percentage of income against the cumulative
percentage of households.

The table shows the shows the percentage of income in each quintile group and the cumulative
percentage of households and income.

The Lorenz curve graphs the cumulative income shares against the cumulative household
percentages.
In this graph, the line of equality is the straight line running from zero to 100 percent.
Point A tells us that the 20 percent of the population with the lowest incomes earn 4.9 percent
of total income.
Point B tells us that the 40 percent of the population with the lowest incomes earn 15.5 percent
of the total income.
Point C tells us that the 60 percent of the population with the lowest incomes earn 31.8 percent
of total income.
Point D tells us that the 80 percent of the population with the lowest incomes earns 55.8
percent of total income.
And by comparing point D and point E, we can see that the richest 20 percent of the population
earn 44.2 percent of total income.
The figure on the right includes the Lorenz
curve for wealth with the Lorenz curve for
income.
Wealth is much more unequally distributed
than income.
If wealth and income are measured in a
consistent way, they both have the same
distribution.

Poverty is a state in which a family’s income is too low to be able to buy the quantities of food,
shelter, and clothing that are deemed necessary.
In Canada, poverty is measured in terms of a low-income cutoff.
The low-income cutoff is the income level, determined...