Lecture 21

# Lecture 21 - Chapter 18 Income inequality Exams can be...

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1 Exams can be picked up from your TA this week Rough guide to grading scale (same as used for first exam) • A: 85-100 • B: 70-84 • C: 55-69 • D: 40-54 • F: below 40 • class average on second exam: 70 More info at course web page Chapter 18: Income inequality A. Measuring income inequality Lorenz curve plots cumulative percentage of income (vertical axis) as function of cumulative percentage of households (horizontal) 3.4% 8.6% 14.6% 23.0% 50.4% Gini coefficient (also called Gini ratio )shows area between Lorenz Curve and 45% line as a fraction of the area under the 45 degree line Gini = 0 means perfect equality, Gini = 1 means perfect inequality

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2 Gini coefficients in different countries Income : how much you earn over an interval of time (flow variable-- \$5,000/month or \$60,000/year) Wealth : how much your total assets are worth at a point in time (stock variable-- \$39,000 as of January 1, 2008) Lorenz curves for income and wealth compared. Chapter 18: Income inequality A. Measuring income inequality B. Sources of income inequality 1. Work effort
3 Top 20% of households earn 50% of income. Bottom 20% of households earn less than 4% of income.

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Lecture 21 - Chapter 18 Income inequality Exams can be...

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