# Ch18 - Chapter 18: Income Inequality Objectives: Describe...

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Chapter 18: Income Inequality Objectives: Describe the inequality in income and wealth in the United States and the trends in inequality Explain the features of the labor market that contribute to economic inequality Describe the scale of income redistribution by government

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Measuring Economic Inequality The census bureau defines a household’s income as money income , which equals market income plus cash payments to households by the government. Market income equals wages, interest, rent, and profit earned by the household in factor markets, before paying income taxes.
Measuring Economic Inequality The Distribution of Income Figure 18.1 shows the distribution of income across the 113 million households in the United States in 2005.

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Measuring Economic Inequality Quintile Income range Number in  Class Percentage in  Class Lowest Less than \$19,000 Second \$19,001 to \$36,000 Third \$36,001 to \$57,000 Fourth \$57,001 to \$92,000 Fifth Greater than \$92,000 Total 100
Measuring Economic Inequality Figure 18.2 shows the distribution of income shares for the United States in 2005.

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Measuring Economic Inequality In 2005: The poorest 20% of households received only 3.4% of the total income. The middle 20% received 14.6% of total income. The richest 20% received 50.4% of total income.
Measuring Economic Inequality Quintile U.S. households,  percentage of U.S.  income Major league baseball  players, percentage of major  league baseball income Lowest 3.4 1.8 Second 8.5 2.8 Third 14.6 8.2 Fourth 23.1 24.0 Fifth 50.4 63.3

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Measuring Economic Inequality The Income Lorenz Curve The income Lorenz curve graphs the cumulative percentage of income earned against the cumulative percentage of households.
Measuring Economic Inequality If everyone has the same income, the income Lorenz curve is a 45 degree line from the lower left corner to the upper right corner. This line is called the line of equality . The Lorenz curve shows the cumulative distribution of income.

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Measuring Economic Inequality The Distribution of Wealth A household’s wealth is the value of all the things that it owns at a point in time . The distribution of wealth is another way of examining the degree of economic inequality.
Measuring Economic Inequality A wealth Lorenz curve measures the distribution of wealth in the same way an income Lorenz curve measures the distribution of income. The distribution of wealth is even more unequally distributed than income.

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Wealth Versus Income Wealth is a stock of assets and income is a flow of earnings that result from a given stock of wealth. The reason that wealth is more unequally distributed than income is that wealth does not measure the quantity of human capital —only income reflects the quantity of human capital. Because wealth does not reflect potential for income
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## This note was uploaded on 04/03/2009 for the course ECON 2102 taught by Professor Bill during the Spring '08 term at Temple.

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Ch18 - Chapter 18: Income Inequality Objectives: Describe...

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