Gini Coeficient And Lorenz Curve EQ3 Flashcards
What is the Lorenz curve?
A graphical way of showing equality within a society (the further away from the perfect line of equality the more unequal)
What sort of society does this Lorenz curve represent?
-Here, The Lorenz curve is close to the straight line of perfect equality, meaning wealth is fairly distributed: it represents a more equal society
-e.g. Scandinavian countries like Sweden and Norway have lower income inequality due to strong welfare systems and progressive taxation
-this also means the gini coefficient would be closer to 0
What sort of society does this Lorenz curve represent?
-Here, the lorenz curve bends further away from the equality line, showing a large gap between rich and poor.
-this also means the gini coefficient would be closer to 1
-e.g. South Africa in the 1970s—the white minority (14% of the population) controlled 73% of national income, while the black majority (70% of the population) received only 19%
What is the gini coefficient?
-A mathematical method to show inequality within a society
-a score closer to 0 = more equal
-a score closer to 1 = unequal
How is the gini coefficient calculated?
(You won’t need to do any calculations in an exam)
-The Lorenz Curve (red line) represents actual income distribution—further from the straight line means more inequality.
-The Line of Perfect Equality (black dashed line) shows a society where everyone earns the same income.
-Area A (blue) is the gap between the perfect equality line and the Lorenz curve—this represents income inequality.
-Area B (green) is the remaining part of the total area under the perfect equality line.
What are the gini coefficient trends around the world?
-Globalisation has created income gaps within and between developed and developing countries
-some countries and societies prioritise equality of opportunity e.g. the USA emphasise equality of opportunity—believing income inequality is acceptable as long as people can move up the social ladder
-some countries and societies prioritise equality of outcome e.g. Europe tends to favour egalitarian principles, believing in minimal income gaps for a fair society.
What are some advantages of using the gini coefficient?
-Unlike GDP, which only shows total output, the Gini coefficient highlights income distribution e.g. the USA has a high GDP, but its Gini score shows that income is concentrated among the wealthiest
-The Gini score helps compare wealth gaps between different groups, such as urban vs. rural populations or different social classes e.g. in China, coastal cities like Shanghai have much higher incomes than rural inland
What are some disadvantages of using the gini coefficient?
-The Gini coefficient measures income distribution but does not explain why inequality exists e.g.two countries may have the same Gini score, but one might have inequality due to historical discrimination, while the other has inequality due to technological job losses.
-The Gini coefficient only measures income inequality, not differences in wealth (assets, land, savings, investments), which can be much larger e.g. in some countries, older generations may own most of the wealth, but their incomes appear low
Why might the gini coefficient be useful in measuring the impacts of globalisation?
-The Gini coefficient shows whether globalisation is widening or reducing wealth gaps within a country e.g. in many developing countries like India and Brazil, globalisation has boosted overall economic growth but increased income inequality, as urban areas benefit more than rural regions
-The Gini coefficient helps compare how different nations experience globalisation and whether wealth is evenly distributed
Why might the gini coefficient not be useful for measuring globalisation?
-While the Gini score measures inequality, it does not explain why it occurs or whether it is directly caused by globalisation. E.g., inequality in South Africa is influenced by historical factors not just global trade and investment.
-The Gini coefficient focuses only on income distribution and does not consider other globalisation impacts like employment rates, living standards, or access to education e.g. China’s Gini score may indicate rising inequality, but millions of people have been lifted out of poverty due to globalisation-driven economic growth
What is the kuznet’s curve?
-The Kuznets Curve is an economic model that shows how income inequality changes with economic development, forming an inverted U-shape.
-It suggests that at low development levels, inequality is low because most people are equally poor; as a country industrialises, inequality rises as the rich benefit first, but in later stages, inequality falls due to social policies and wage growth.
How does the kuznet’s curve link to the gini coefficient?
-The Gini coefficient because the Kuznets Curve mirrors Gini score trends—as economies grow, the Gini coefficient first increases (rising inequality) before decreasing (more equal wealth distribution)
-For example, the Industrial Revolution caused rising inequality in early capitalist economies, but modern welfare systems in developed nations have since reduced it
What are some examples of winners and losers of globalisation?
Winners:
-TNCs, cheap labour etc.
-the rising middle class of factory and call centre workers in Asia
-people who work for TNCs who have gotten job security
Losers:
-workers in developed countries that have lost jobs (e.g. in Redcar)
-workers in sweatshop factories
-slum dwellers in devolving cities like Lagos ad the reality of urban life is worse than expected
