ch18 - Economic Inequality Measuring Economic Inequality...

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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
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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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