Study Notes
Inequality refers to the uneven distribution of resources, such as income and wealth, among individuals or groups. It can be measured using tools like the Lorenz curve and the Gini coefficient.
- Income Inequality — uneven distribution of income among individuals. Example: In a market economy, income is determined by supply and demand forces.
- Wealth Inequality — variations in the value of assets owned by individuals. Example: Wealth can be accumulated through saving, asset price increases, and inheritance.
- Lorenz Curve — a graphical representation of income or wealth distribution. Example: The further the curve is from the 45° line, the greater the inequality.
- Gini Coefficient — a statistical measure of inequality ranging from 0 to 1. Example: A Gini coefficient of 0 signifies perfect equality, while 1 indicates maximum inequality.
Exam Tips
Key Definitions to Remember
- Income Inequality
- Wealth Inequality
- Lorenz Curve
- Gini Coefficient
Common Confusions
- Confusing income inequality with wealth inequality
- Misunderstanding the interpretation of the Gini coefficient
Typical Exam Questions
- What is the Gini coefficient? It is a measure of inequality ranging from 0 (perfect equality) to 1 (maximum inequality).
- Which factor is most likely to reduce income inequality? An improvement in education and training.
- Explain three causes of income inequality between countries? Differences in resource endowment, sectoral share of GDP, and infrastructure variations.
What Examiners Usually Test
- Understanding of how inequality is measured
- Causes and impacts of inequality
- The role of economic systems like capitalism in influencing inequality