Theme 4: Poverty, the Lorenz curve and the Gini coefficient

The Lorenz Curve shows the degree of income inequality in a given economy or population. The further away the Lorenz curve from the line of absolute equality (the 45° line), the greater the degree of income inequality. Lorenz curves can also be used to illustrate wealth inequality.


This is a really interesting MC question on causes of a shift in a country's Lorenz Curve. A Gini coefficient of zero expresses perfect equality where all values are the same (for example, where everyone has an exactly equal income). A Gini coefficient of one (100 on the percentile scale) expresses maximal inequality among values (for example where only one person has all the income).

Unit 4: Introduction to inequality

Income distribution (often overlooked, especially when economies are booming) seems the hottest topic at the moment. Inequality books top the bestseller lists.

There are some excellent resources at the end of this post (Thank you Tom White). If you manage to look at some of these over the break, you will have an excellent understanding of this popular area of the course.

Inequality as a topic is great for macro, with scope for analysis and evaluation of UK government policy and approaches to development economics.

Things you need to understand include:

1. Looking at and measuring poverty – what’s happening to absolute and relative poverty around the world?
2. Why is absolute poverty falling? Where is it falling fastest? Where is it still entrenched?
3. What do Lorenz curves look like, and how is the Gini co-efficient calculated? Clarify the distinction between income and wealth.
4. Is relative poverty a crucial component in a successful and dynamic economy?
5. “The rich get richer and the poor get poorer”. Discuss.
6. Does inequality hamper growth and poison human development?
7. Is inequality a price worth paying if it is accompanied by rapid growth and living standards?
8. How can inequality be expressed other than by income?

Extension activities

1. What theories are presented for rising levels of inequality within many economies?
2. Evaluate policies that could reduce inequality (a) within economies (b) between economies.