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Unformatted text preview: Chapter 18 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 below shows the percentage of income in each quintile group. Households Income Percentage Cumulative percentage Percentage Cumulative percentage A Lowest 20 20 5.0 5.0 B Second-lowest 20 40 10.8 15.8 C Middle 20 60 16.5 32.3 D Second-highest 20 80 24.1 56.4 E Highest 20 100 43.6 100.0 • The table also shows the cumulative percentage of households and income. • The Lorenz curve below 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 5 percent of total income. • Point B tells us that the 40 percent of the population with the lowest incomes earn 15.8 percent of total income. • Point C tells us that the 60 percent of the population with the lowest incomes earn 32.3 percent of total income....
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This note was uploaded on 06/30/2009 for the course ECON 1020 taught by Professor Parkin during the Spring '09 term at UWO.
- Spring '09