L 8 Sept 27

# L 8 Sept 27 - Inequality and Mobility 1 Inequality Poverty...

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Inequality and Mobility 1

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Inequality Poverty severity captures inequality among the poor Also interested in overall inequality 3 basic ways to look at inequality Ratios of percentiles Lorenz curve Gini coefficient 2
Inequality Income shares Sort households from richest to poorest Calculate total income in society Divide households into groups (for example, 5 quintiles) Add up income for each group Figure out percentage of total income received by each group Compare income/wealth at various points in the distribution (percentiles) Lorenz Curve Graph that represents income shares Gini coefficient Number that expresses income shares 3

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Lorenz curve Plot cumulative fraction of the population on the x-axis against the cumulative percentage of the income (or consumption or earnings) on the y-axis. Answers the question: What y percent of the total income does the bottom x percent of the population have? 4
5 Lorenz Curve Examples 0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 100% Percent of families Percent of total income 20% 40% 60% 80% 100% Perfect equality

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Lorenz Curve Examples 0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 100% Percent of families Percent of total income 20% 40% 60% 80% 100% Perfect inequality Perfect equality
0% 20% 40% 60% 80% 0 3.4% 12.1% 26.9% 50.3% 100.0% 0% 20% 40% 60% 80% 100% Percent of total income Percent of families Lorenz Curve for United States, 2007 perfect equality 2007 20% 40% 60% 80% 100% (Based on Census data)

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Gini coefficient
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## This note was uploaded on 09/07/2011 for the course ECON 375 taught by Professor Staff during the Fall '10 term at Maryland.

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L 8 Sept 27 - Inequality and Mobility 1 Inequality Poverty...

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