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Economics Major Core
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- University Of The Witwatersrand (wits)
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Monday, 18 February 2019Economics 1016A Core
Week 3: Monday & Friday
- GINI co-efficient (scale of 0-1: the closer to 1, the more inequality there is in the
population) & Lorenz curve
- Inequality and policy interventions: redistribution (taxing higher income groups)
and predistribution (education: preventing future inequality)
- Global inequality: between people and between nations
- Accidents of birth, endowments and intergenerational inequality
- Government’s role in the economy
- per capita income
- averages are not a true representation of the economy eg see groups on the
presentation — A vs B
- welfare levels
LORENZ CURVE
1
, Monday, 18 February 2019
- illustrates the distribution of income — the curve departs from the perfect line of
equality of income.
- the steeper the curve, the more inequality within a population. More common in
developing countries
- in terms wealth ownership: majority do not own land (90%), only 10% do own all
100% of land therefore SHARP increase in slope (straight line curve)
- Gini Coefficient: The Gini coefficient (g) is approximated with the following
formula:
g ≈ A / (A + B)
as area of A get bigger, the more inequality within a population (larger angle of A)
HOW TO CALCULATE GINI COEFFICIENT
- take every combination within the population and calculate the difference
(factorial of the number of population)
- average out the DIFFERENCES
- divide the average difference by mean income of population as a whole to get the
relative mean difference
- divide the relative mean difference by 2 to get the Gini
2
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