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Lecture 18

ECON BC 2075y Lecture 18: Lecture 18 Notes

Course Code
ECON BC 2075y
Belinda Archibong

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On Measurement of Inequality
Session 18 Topics
Economic inequality revisited
Criteria for inequality measurement
Lorenz curve
Complete measures of inequality
Inequality and growth- inverted U hypothesis, theory and evidence
Horizontal inequality
Economic Inequality Revisited
Distribution of income and income and wealth inequality- many questions here,
one is how is what people earn, earned?
Distinction between personal and functional distributions —
How economic inequalities are created in a society- need to understand how
factors of production are paid and owned
First, need to understand how to measure economic inequality (50-50, 30-70 is
obvious, but what of 20-30-50 vs 22-22-56? Etc)
Need to agree on properties a desirable inequality index should satisfy- depend
on our normative beliefs about inequality
Personal vs Functional Distributions
Personal distribution (or: the ‘size distribution of income’) relates to individual
persons and their incomes.
The way in which that income was acquired often remains in the
What matters is how much someone earns, not so much whether that
income consists of wage, interest, profit, pension or whatever.
And further special attention is paid to income recipients as a collective
body, in which regular patterns are sought
Functional distribution or ‘factor share distribution’ explains the share of total
national income received by each factor of production.
In other words, it relates to the distribution of rewards for the services of
the factors of production.
Rent, wages, interest and profit are the rewards for the services of land,
labour, capital and organisation respectively
no longer concerned with individuals and their individual incomes, but
with factors of production: labour, capital, land and something else that
may best be called ‘entrepreneurial activity’
Four Criteria for Inequality Measurement
Anonymity principle→ it does not matter who earns the income
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