Inequality

Front 1

Pareto Tail

Back 1

Result: the richest 10% are those that are most inclined to save.

=> Inequality can be reduced if we all start saving

Front 2

Lorenz Curve

Back 2

shows the degree of equality in income distribution:

- closer the Lorenz curve is to the diagonal, the more
equally income is distributed.

Front 3

Gini Coefficient

Back 3

The Gini coefficient calculates the area between the
Lorenz curve and the 45 degree line.

Gini coefficient = A/(A+B)

Perfect equality Gini = 0
Imperfect equality Gini = 1 (one person has all income)

Front 4

Poverty rate:

Back 4

Percentage of population whose family income falls below an absolute level called the poverty line.

Front 5

Poverty Line

Back 5

Absolute level of income set by the government for
each family size below which a family is deemed to
be in poverty

Front 6

Relative poverty

Back 6

If income < some % of median income)

Relative poverty is inevitable! (unless everyone is
exactly equal!)

Front 7

Problems in measuring inequality

Back 7

1. Expenditure-based vs. income-based measures
2. Economic life cycle.
3. Transitory vs. permanent income.
4. Economic mobility

Front 8

Pareto optimal

Back 8

No-one can be made better off without at least one person being made worse off.

Front 9

Pareto improving reform

Back 9

Means at least some people are better off, and no one is worse off.

Note: dictatorship may be pareto optimal, but not desirable from a society’s point of view

Front 10

Utilitarianism

Back 10

Social happiness is the sum of the individuals,
so maximize society’s total utility.

Note: Utilitarian GOVT has to balance gains from greater equality against losses from distorted incentives.

Front 11

Diminishing marginal utility

Back 11

First unit of consumption of a good or service yields more utility than the second or subsequent units.

….taking 1 $ from rich to the poor will decrease the rich's utility and increase the poor's, but rich's falls by less than poor's rises. Therefore, overall utility increases.

Front 12

Liberalism:

Max-min criterion:

Back 12

Choose rules from behind a ‘veil of ignorance’

Maximize the position of the poorest in society!

Front 13

Libertarianism

Back 13

Political philosophy according to which govt should
punish crimes and enforce voluntary agreements but not redistribute income.

Equality of opportunities is more important than equality of income!

Front 14

Policies to reduce poverty

Back 14

1. Minimum wage laws
2. Social security
3. Negative income tax
4. In-kind transfers
5. Anti-poverty programs and work incentives

Front 15

Negative Income Tax

Back 15

tax owed = (0.4 × income) - $15,000

e.g.
- family that earns $70,000 pays $13,000 tax
- family that earns $37,500 owes nothing
- family that earns $30,000 owes -$3,000.

Front 16

Classic liberal / libertarians

Back 16

Emphasising self-reliance, individualism and free markets with less regulation, tax and government services.

eg. US & UK: least healthy among wealthy
democracies

Front 17

Modern liberal

Back 17

Emphasise full employment, income protection, housing, education, health and social insurance.

eg. Sweede & Norway: enjoy better health

Front 18

“cut-throat” US versus “cuddly” Sweden:

There are trade-off's between:

Back 18

Economic growth/innovation and growing inequality/high poverty/a weak social safety net.