Class21_04

Class21_04 - Class Notes(covers part of Chapter 15 in the...

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21/04/2008 Class Notes (covers part of Chapter 15 in the textbook) Class Outline Income Inequality Income Inequality Def. Income Lorenz Curve The income Lorenz curve graphs the cumulative percentage of income earned against the cumulative percentage of households. Example: 10 person economy Income Income 20% /(Total Income) Cumulative Carol 80,000 150,000 39% 100% E Mike 70,000 Greg 60,000 110,000 28.6% 61.1% D Marsha 50,000 Peter 40,000 70,000 18.2% 32.5% C Jan 30,000 Bobby 25,000 45,000 11.7% 14.3% B Cindy 20,000 Alice 10,000 10,000 2.6% 2.6% A Sam 0 Toata 385,000 Graphically : 1
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Why is income not equally distributed? 1. Differences in human capital investments , i.e., investments in education and training Returns to education have increased, and there are two possible explanation for this: (a) the Demand for college-educated people has increases Graphically : (b) the Supply for college-educated people has decreased D L L* E S D’ E’ w w* 2 If income were equally distributed the Lorenz curve would overlap with the line of equality!
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Class21_04 - Class Notes(covers part of Chapter 15 in the...

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