SlideShare a Scribd company logo
1 of 27
Download to read offline
CHAPTER 20
THE DISTRIBUTION OF INCOME
Presented by:
Noman Khelgi
Tooba Riaz
M.Anwar
Kiran Kiyani
OUTLINE
 Economic inequality in our society
 Problems in measuring economic inequality
 Governmental role in redistributing income
 Policies for helping poor families escape poverty
Inequality
There are two types of inequality
1. Wealth inequality
2. Income inequality
Inequality
Wealth inequality
 Unequal distribution of wealth
 E.g global wealth= almost $260 Trillion
 North America + Europe > 20% of the world population and has
67% of the wealth.
 China > 20% of the world population, has 8% of the wealth.
 India+Africa=30% population of the world has 2% of the wealth.
Inequality
Income Inequality
 Unequal distribution of income
 High skills high income, low skills low income
 The very rich are now a lot richer, but the very poor are doing a
little better
Income Distribution
 Smoothness or equality with which income is divided among
members of society
 If every person earns equal amount of money the income
distribution is perfect, if not then income distribution is perfectly
unequal
 Income distribution falls in the middle of equal and unequal
Measuring equality/inequality
 Often measured by how much income is earned by
different segments of population
Average IncomesPopulation
segments
$110000The top 20%
$80000The 2nd 20%
$50000The 3rd 20%
$24000The 4th 20%
$10000The bottom 20%
Measuring equality/inequality
Total income = 274000
Cumulative
Percentage
Percentage incomeSegments
3.6%3.6%Bottom 20%
12.4%8.8%2nd 20%
30.6%18.2%3rd 20%
59.8%29.2%4th 20%
99.9%40.1%Top 20%
Lorenz Curve
Gini Coefficient
 The Gini coefficient ranges from 0 to 1
 Gini Coefficient = area b/w actual and equal distribution curve
divided by total area under equal distribution curve
 In fig. Gini Coefficient= area of A / area of (A+B)
 Gini Coefficient is directly proportional to income inequality
 If Gini Coefficient=0Perfectly equal income distribution
 If Gini Coefficient=1Perfectly unequal income distribution
Problems in measuring inequality
1. Expenditure based vs income based measures
2. The economic life cycle
3. Transitory vs permanent income
Problems in measuring in equality
Income approach
 Total incomes earned by household per year
Expenditure approach
 Total amount spent on the goods per year
 Providing a direct measure of living standards
 The collection of data on expenditure difficult
Problems in measuring in equality
The economic life cycle
 Regular pattern of income variation over a person’s life
 Normal life cycle pattern causes inequality in distribution of
annual incomes
 To gauge the inequality of living standards, the distribution of
lifetime income is more relevant than the distribution of annual
incomes
 The data on lifetime incomes are not readily available
Problems in measuring in equality
Transitory vs permanent income
 Permanent income is a person’s normal income
 Permanent income is hard to measure
 A family’s ability to buy goods and services depends largely on
its permanent income
 To gauge inequality of living standards the distribution of
permanent income is more relevant than the distribution of
annual income
 Permanent income is hard to measure
The political philosophy of
redistributing income
Utilitarianism
 Utility_ A measure of happiness or satisfaction
 The utilitarian case for redistributing income is based
on diminishing utility
Utilitarianism
 Utilitarianism is the political philosophy
which government should choose policies
to maximize the total utility of every one in society
Rawls and the maximin criterion
 The claim that the government should
aim to maximize the wellbeing of the
word-off person in society
Rawlsianism
 The political philosophy according to
which the government should choose
political deemed to be just, as evaluated
by an impartial observer behind a veil of ignorance
Libertarianism
 The political philosophy according to which the
government should punish crime and enforce voluntary
agreement but not redistribute income
Policies to reduce poverty
Poverty
 ‘‘The state of being inferior in quality or insufficient in
amount, being extremely poor.’’
 Two types of poverty i.e Absolute poverty and relative poverty
 Absolute poverty: when people have insufficient income to
afford the basic necessities of life, such as food, rent clothing
etc
 Relative poverty: when people have income significantly less
than the average income for society
 In developed countries like U.K , absolute poverty is generally
rare however relative poverty is a significant problem
Poverty
 Poverty is a big problem faced by policymakers
 Government should provide the income to those who need it
most
 Poor families are more likely than the overall population to
experience homelessness, drugs dependency, domestic
violence, health problem, illiteracy, unemployment and low
educational attainments.
 Political philosophers hold various views about the role of the
government in altering the distribution of income
 Reducing inequality and poverty and promoting equity are
important objectives of economics
How to Reduce Poverty?
 1. Minimum Wages Law:
 Law setting a minimum or award wage that employers can pay
workers are a perennial source of debate
 Minimum wage is a way to help the working poor without any
cost to government
 Minimum wages can be understood by the tools of demand and
supply
 For workers with low level of skills and experience, a high
award wage forces the wage above the level that balances
supply and demand and it raises the cost of labor to firm and
reduces quantity of labor as demanded which results in high
unemployment
How to Reduce Poverty ( cont.)
2. Social Security
“Government programs that supplement the income of the
needy”
 The other way to reduce poverty is way to raise the living
standards of the poor by government through social security
programs
 Social security programs includes unemployment benefits, old-
age pension, family assistance allowances and disability
payment
 But criticism of SSP is that it creates incentives for people to
become ‘needy’
How to Reduce Poverty ( cont.)
 3. Negative Income Tax:
 “A tax system that collects revenue from high income
households and gives transfer to low income households.”
 Taxes collection affects the distribution of income
 High income families pay high tax than low income families
 The tax money should be spend on poor to minimize their
number
 Every family should report its income to the government
How to Reduce Poverty ( cont.)
5. In-Kind Transfers
 Providing poor the goods and services they need to raise their
living standards
 Those good and services includes food, shelter, clothes etc
 In-kind transfer argue that such transfer that the poor get what
they need most
 Voucher Cards: Government should provide voucher cards to the
poor so when they buy some food etc from any store, they can
buy it on this card instead of giving money
How to Reduce Poverty ( cont.)
 5. Anti-Poverty Programs:
 Encouraging the poor from escaping poverty
 The adverse effect of high effective tax rate can persist over
time
 In addition, their children miss the lesson learned by observing
parents with a full time job, and this may adversely affect their
own ability to find and hold a job
 These programs alter work attitudes and create a ‘culture of
poverty’
 Solution is that benefits to poor families should be reduced

More Related Content

What's hot

Monetary Policy
Monetary PolicyMonetary Policy
Monetary PolicyRidaZaman1
 
Inflation powerpoint
Inflation powerpointInflation powerpoint
Inflation powerpointGerard1990
 
Tools of monetary policy
Tools of monetary policyTools of monetary policy
Tools of monetary policyJibran Karim
 
Transmission Mechanism of Monetary Policy
Transmission Mechanism of Monetary PolicyTransmission Mechanism of Monetary Policy
Transmission Mechanism of Monetary PolicyAmandiNiwarthanaWeer
 
Gregory mankiw macroeconomic 7th edition chapter (15)
Gregory mankiw macroeconomic 7th edition chapter  (15)Gregory mankiw macroeconomic 7th edition chapter  (15)
Gregory mankiw macroeconomic 7th edition chapter (15)Kyaw Thiha
 
Macro Economics -II Chapter Two AGGREGATE SUPPLY
Macro Economics -II Chapter Two AGGREGATE SUPPLYMacro Economics -II Chapter Two AGGREGATE SUPPLY
Macro Economics -II Chapter Two AGGREGATE SUPPLYZegeye Paulos
 
Public goods & Private Goods [2022].pptx
Public goods & Private Goods [2022].pptxPublic goods & Private Goods [2022].pptx
Public goods & Private Goods [2022].pptxJon Newland
 
Stabilisation policy
Stabilisation policyStabilisation policy
Stabilisation policyPrabha Panth
 
Principle of maximum social advantage
Principle of maximum social advantagePrinciple of maximum social advantage
Principle of maximum social advantageCHOWDAPPA V A
 
Economic growth
Economic growth Economic growth
Economic growth Shooger
 
Chapter 1 keynes and the classic (Scarth)
Chapter 1 keynes and the classic (Scarth)Chapter 1 keynes and the classic (Scarth)
Chapter 1 keynes and the classic (Scarth)Abdul Hadi Ilman
 
Harrod domar model of growth
Harrod domar model of growthHarrod domar model of growth
Harrod domar model of growthManojSharma968
 
types of inflation and inflationary and deflationary gap
types of inflation and  inflationary and deflationary gap types of inflation and  inflationary and deflationary gap
types of inflation and inflationary and deflationary gap ayazmashori
 

What's hot (20)

Monetary Policy
Monetary PolicyMonetary Policy
Monetary Policy
 
New keynesian economics
New keynesian economicsNew keynesian economics
New keynesian economics
 
Budget lines
Budget linesBudget lines
Budget lines
 
Money Supply In India
Money Supply In IndiaMoney Supply In India
Money Supply In India
 
Inflation powerpoint
Inflation powerpointInflation powerpoint
Inflation powerpoint
 
Monetary policy
Monetary policyMonetary policy
Monetary policy
 
Public expenditures
Public expendituresPublic expenditures
Public expenditures
 
Interest Rate Theory
Interest Rate TheoryInterest Rate Theory
Interest Rate Theory
 
Stabilization policy
Stabilization policyStabilization policy
Stabilization policy
 
Tools of monetary policy
Tools of monetary policyTools of monetary policy
Tools of monetary policy
 
Transmission Mechanism of Monetary Policy
Transmission Mechanism of Monetary PolicyTransmission Mechanism of Monetary Policy
Transmission Mechanism of Monetary Policy
 
Gregory mankiw macroeconomic 7th edition chapter (15)
Gregory mankiw macroeconomic 7th edition chapter  (15)Gregory mankiw macroeconomic 7th edition chapter  (15)
Gregory mankiw macroeconomic 7th edition chapter (15)
 
Macro Economics -II Chapter Two AGGREGATE SUPPLY
Macro Economics -II Chapter Two AGGREGATE SUPPLYMacro Economics -II Chapter Two AGGREGATE SUPPLY
Macro Economics -II Chapter Two AGGREGATE SUPPLY
 
Public goods & Private Goods [2022].pptx
Public goods & Private Goods [2022].pptxPublic goods & Private Goods [2022].pptx
Public goods & Private Goods [2022].pptx
 
Stabilisation policy
Stabilisation policyStabilisation policy
Stabilisation policy
 
Principle of maximum social advantage
Principle of maximum social advantagePrinciple of maximum social advantage
Principle of maximum social advantage
 
Economic growth
Economic growth Economic growth
Economic growth
 
Chapter 1 keynes and the classic (Scarth)
Chapter 1 keynes and the classic (Scarth)Chapter 1 keynes and the classic (Scarth)
Chapter 1 keynes and the classic (Scarth)
 
Harrod domar model of growth
Harrod domar model of growthHarrod domar model of growth
Harrod domar model of growth
 
types of inflation and inflationary and deflationary gap
types of inflation and  inflationary and deflationary gap types of inflation and  inflationary and deflationary gap
types of inflation and inflationary and deflationary gap
 

Similar to Micro Economics Chapter 20 , The Distribution of Income by (Nouman Khilji)

Similar to Micro Economics Chapter 20 , The Distribution of Income by (Nouman Khilji) (20)

20
2020
20
 
PRESENTATION OF ECONOMICS ON INEQUALITY.pptx
PRESENTATION OF ECONOMICS ON INEQUALITY.pptxPRESENTATION OF ECONOMICS ON INEQUALITY.pptx
PRESENTATION OF ECONOMICS ON INEQUALITY.pptx
 
Econ Ch17 Economic Challenges
Econ Ch17 Economic ChallengesEcon Ch17 Economic Challenges
Econ Ch17 Economic Challenges
 
Econ Ch17 Economic Challenges
Econ Ch17 Economic ChallengesEcon Ch17 Economic Challenges
Econ Ch17 Economic Challenges
 
Econ Ch17 Economic Challenges
Econ Ch17 Economic ChallengesEcon Ch17 Economic Challenges
Econ Ch17 Economic Challenges
 
Econ Ch17 Economic Challenges
Econ Ch17 Economic ChallengesEcon Ch17 Economic Challenges
Econ Ch17 Economic Challenges
 
Econ Ch17 Economic Challenges
Econ Ch17 Economic ChallengesEcon Ch17 Economic Challenges
Econ Ch17 Economic Challenges
 
Econ Ch17 Economic Challenges
Econ Ch17 Economic ChallengesEcon Ch17 Economic Challenges
Econ Ch17 Economic Challenges
 
Harvard style term paper poverty and inequality
Harvard style term paper   poverty and inequalityHarvard style term paper   poverty and inequality
Harvard style term paper poverty and inequality
 
Economic Inequality in Developing Country
Economic Inequality in Developing CountryEconomic Inequality in Developing Country
Economic Inequality in Developing Country
 
income inequality ppt - Dr. Preeti
income inequality ppt - Dr. Preetiincome inequality ppt - Dr. Preeti
income inequality ppt - Dr. Preeti
 
Poverty & Underdevelopment
Poverty & UnderdevelopmentPoverty & Underdevelopment
Poverty & Underdevelopment
 
Poverty and NPO
Poverty and NPOPoverty and NPO
Poverty and NPO
 
Social Policy
Social PolicySocial Policy
Social Policy
 
Equitable Income Inequality
Equitable Income InequalityEquitable Income Inequality
Equitable Income Inequality
 
Economic development challenges
Economic development challengesEconomic development challenges
Economic development challenges
 
Poverty
PovertyPoverty
Poverty
 
Reducing Poverty Essay
Reducing Poverty EssayReducing Poverty Essay
Reducing Poverty Essay
 
Causes of Poverty ppt
Causes of Poverty pptCauses of Poverty ppt
Causes of Poverty ppt
 
Econ
EconEcon
Econ
 

Recently uploaded

ekthesi-trapeza-tis-ellados-gia-2023.pdf
ekthesi-trapeza-tis-ellados-gia-2023.pdfekthesi-trapeza-tis-ellados-gia-2023.pdf
ekthesi-trapeza-tis-ellados-gia-2023.pdfSteliosTheodorou4
 
ΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτος
ΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτοςΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτος
ΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτοςNewsroom8
 
Money Forward Integrated Report “Forward Map” 2024
Money Forward Integrated Report “Forward Map” 2024Money Forward Integrated Report “Forward Map” 2024
Money Forward Integrated Report “Forward Map” 2024Money Forward
 
Hello this ppt is about seminar final project
Hello this ppt is about seminar final projectHello this ppt is about seminar final project
Hello this ppt is about seminar final projectninnasirsi
 
2B Nation-State.pptx contemporary world nation
2B  Nation-State.pptx contemporary world nation2B  Nation-State.pptx contemporary world nation
2B Nation-State.pptx contemporary world nationko9240888
 
Introduction to Health Economics Dr. R. Kurinji Malar.pptx
Introduction to Health Economics Dr. R. Kurinji Malar.pptxIntroduction to Health Economics Dr. R. Kurinji Malar.pptx
Introduction to Health Economics Dr. R. Kurinji Malar.pptxDrRkurinjiMalarkurin
 
(Gender) tone at the top: the effect of board diversity on gender inequality
(Gender) tone at the top: the effect of board diversity on gender inequality(Gender) tone at the top: the effect of board diversity on gender inequality
(Gender) tone at the top: the effect of board diversity on gender inequalityGRAPE
 
Zimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdf
Zimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdfZimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdf
Zimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdfFREELANCER
 
What is sip and What are its Benefits in 2024
What is sip and What are its Benefits in 2024What is sip and What are its Benefits in 2024
What is sip and What are its Benefits in 2024prajwalgopocket
 
OAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptx
OAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptxOAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptx
OAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptxhiddenlevers
 
Aon-UK-DC-Pension-Tracker-Q1-2024. slideshare
Aon-UK-DC-Pension-Tracker-Q1-2024. slideshareAon-UK-DC-Pension-Tracker-Q1-2024. slideshare
Aon-UK-DC-Pension-Tracker-Q1-2024. slideshareHenry Tapper
 
Building pressure? Rising rents, and what to expect in the future
Building pressure? Rising rents, and what to expect in the futureBuilding pressure? Rising rents, and what to expect in the future
Building pressure? Rising rents, and what to expect in the futureResolutionFoundation
 
2024-04-09 - Pension Playpen roundtable - slides.pptx
2024-04-09 - Pension Playpen roundtable - slides.pptx2024-04-09 - Pension Playpen roundtable - slides.pptx
2024-04-09 - Pension Playpen roundtable - slides.pptxHenry Tapper
 
Demographic transition and the rise of wealth inequality
Demographic transition and the rise of wealth inequalityDemographic transition and the rise of wealth inequality
Demographic transition and the rise of wealth inequalityGRAPE
 
10 QuickBooks Tips 2024 - Globus Finanza.pdf
10 QuickBooks Tips 2024 - Globus Finanza.pdf10 QuickBooks Tips 2024 - Globus Finanza.pdf
10 QuickBooks Tips 2024 - Globus Finanza.pdfglobusfinanza
 
Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...
Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...
Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...Amil baba
 
Banking: Commercial and Central Banking.pptx
Banking: Commercial and Central Banking.pptxBanking: Commercial and Central Banking.pptx
Banking: Commercial and Central Banking.pptxANTHONYAKINYOSOYE1
 

Recently uploaded (17)

ekthesi-trapeza-tis-ellados-gia-2023.pdf
ekthesi-trapeza-tis-ellados-gia-2023.pdfekthesi-trapeza-tis-ellados-gia-2023.pdf
ekthesi-trapeza-tis-ellados-gia-2023.pdf
 
ΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτος
ΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτοςΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτος
ΤτΕ: Ανάπτυξη 2,3% και πληθωρισμός 2,8% φέτος
 
Money Forward Integrated Report “Forward Map” 2024
Money Forward Integrated Report “Forward Map” 2024Money Forward Integrated Report “Forward Map” 2024
Money Forward Integrated Report “Forward Map” 2024
 
Hello this ppt is about seminar final project
Hello this ppt is about seminar final projectHello this ppt is about seminar final project
Hello this ppt is about seminar final project
 
2B Nation-State.pptx contemporary world nation
2B  Nation-State.pptx contemporary world nation2B  Nation-State.pptx contemporary world nation
2B Nation-State.pptx contemporary world nation
 
Introduction to Health Economics Dr. R. Kurinji Malar.pptx
Introduction to Health Economics Dr. R. Kurinji Malar.pptxIntroduction to Health Economics Dr. R. Kurinji Malar.pptx
Introduction to Health Economics Dr. R. Kurinji Malar.pptx
 
(Gender) tone at the top: the effect of board diversity on gender inequality
(Gender) tone at the top: the effect of board diversity on gender inequality(Gender) tone at the top: the effect of board diversity on gender inequality
(Gender) tone at the top: the effect of board diversity on gender inequality
 
Zimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdf
Zimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdfZimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdf
Zimbabwe's New Gold-Backed Currency- A Path to Stability or Another Monetary.pdf
 
What is sip and What are its Benefits in 2024
What is sip and What are its Benefits in 2024What is sip and What are its Benefits in 2024
What is sip and What are its Benefits in 2024
 
OAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptx
OAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptxOAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptx
OAT_RI_Ep18 WeighingTheRisks_Mar24_GlobalCredit.pptx
 
Aon-UK-DC-Pension-Tracker-Q1-2024. slideshare
Aon-UK-DC-Pension-Tracker-Q1-2024. slideshareAon-UK-DC-Pension-Tracker-Q1-2024. slideshare
Aon-UK-DC-Pension-Tracker-Q1-2024. slideshare
 
Building pressure? Rising rents, and what to expect in the future
Building pressure? Rising rents, and what to expect in the futureBuilding pressure? Rising rents, and what to expect in the future
Building pressure? Rising rents, and what to expect in the future
 
2024-04-09 - Pension Playpen roundtable - slides.pptx
2024-04-09 - Pension Playpen roundtable - slides.pptx2024-04-09 - Pension Playpen roundtable - slides.pptx
2024-04-09 - Pension Playpen roundtable - slides.pptx
 
Demographic transition and the rise of wealth inequality
Demographic transition and the rise of wealth inequalityDemographic transition and the rise of wealth inequality
Demographic transition and the rise of wealth inequality
 
10 QuickBooks Tips 2024 - Globus Finanza.pdf
10 QuickBooks Tips 2024 - Globus Finanza.pdf10 QuickBooks Tips 2024 - Globus Finanza.pdf
10 QuickBooks Tips 2024 - Globus Finanza.pdf
 
Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...
Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...
Uk-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Raw...
 
Banking: Commercial and Central Banking.pptx
Banking: Commercial and Central Banking.pptxBanking: Commercial and Central Banking.pptx
Banking: Commercial and Central Banking.pptx
 

Micro Economics Chapter 20 , The Distribution of Income by (Nouman Khilji)

  • 1. CHAPTER 20 THE DISTRIBUTION OF INCOME Presented by: Noman Khelgi Tooba Riaz M.Anwar Kiran Kiyani
  • 2. OUTLINE  Economic inequality in our society  Problems in measuring economic inequality  Governmental role in redistributing income  Policies for helping poor families escape poverty
  • 3. Inequality There are two types of inequality 1. Wealth inequality 2. Income inequality
  • 4. Inequality Wealth inequality  Unequal distribution of wealth  E.g global wealth= almost $260 Trillion  North America + Europe > 20% of the world population and has 67% of the wealth.  China > 20% of the world population, has 8% of the wealth.  India+Africa=30% population of the world has 2% of the wealth.
  • 5. Inequality Income Inequality  Unequal distribution of income  High skills high income, low skills low income  The very rich are now a lot richer, but the very poor are doing a little better
  • 6. Income Distribution  Smoothness or equality with which income is divided among members of society  If every person earns equal amount of money the income distribution is perfect, if not then income distribution is perfectly unequal  Income distribution falls in the middle of equal and unequal
  • 7. Measuring equality/inequality  Often measured by how much income is earned by different segments of population Average IncomesPopulation segments $110000The top 20% $80000The 2nd 20% $50000The 3rd 20% $24000The 4th 20% $10000The bottom 20%
  • 8. Measuring equality/inequality Total income = 274000 Cumulative Percentage Percentage incomeSegments 3.6%3.6%Bottom 20% 12.4%8.8%2nd 20% 30.6%18.2%3rd 20% 59.8%29.2%4th 20% 99.9%40.1%Top 20%
  • 10. Gini Coefficient  The Gini coefficient ranges from 0 to 1  Gini Coefficient = area b/w actual and equal distribution curve divided by total area under equal distribution curve  In fig. Gini Coefficient= area of A / area of (A+B)  Gini Coefficient is directly proportional to income inequality  If Gini Coefficient=0Perfectly equal income distribution  If Gini Coefficient=1Perfectly unequal income distribution
  • 11. Problems in measuring inequality 1. Expenditure based vs income based measures 2. The economic life cycle 3. Transitory vs permanent income
  • 12. Problems in measuring in equality Income approach  Total incomes earned by household per year Expenditure approach  Total amount spent on the goods per year  Providing a direct measure of living standards  The collection of data on expenditure difficult
  • 13. Problems in measuring in equality The economic life cycle  Regular pattern of income variation over a person’s life  Normal life cycle pattern causes inequality in distribution of annual incomes  To gauge the inequality of living standards, the distribution of lifetime income is more relevant than the distribution of annual incomes  The data on lifetime incomes are not readily available
  • 14. Problems in measuring in equality Transitory vs permanent income  Permanent income is a person’s normal income  Permanent income is hard to measure  A family’s ability to buy goods and services depends largely on its permanent income  To gauge inequality of living standards the distribution of permanent income is more relevant than the distribution of annual income  Permanent income is hard to measure
  • 15. The political philosophy of redistributing income Utilitarianism  Utility_ A measure of happiness or satisfaction  The utilitarian case for redistributing income is based on diminishing utility
  • 16. Utilitarianism  Utilitarianism is the political philosophy which government should choose policies to maximize the total utility of every one in society
  • 17. Rawls and the maximin criterion  The claim that the government should aim to maximize the wellbeing of the word-off person in society
  • 18. Rawlsianism  The political philosophy according to which the government should choose political deemed to be just, as evaluated by an impartial observer behind a veil of ignorance
  • 19. Libertarianism  The political philosophy according to which the government should punish crime and enforce voluntary agreement but not redistribute income
  • 21. Poverty  ‘‘The state of being inferior in quality or insufficient in amount, being extremely poor.’’  Two types of poverty i.e Absolute poverty and relative poverty  Absolute poverty: when people have insufficient income to afford the basic necessities of life, such as food, rent clothing etc  Relative poverty: when people have income significantly less than the average income for society  In developed countries like U.K , absolute poverty is generally rare however relative poverty is a significant problem
  • 22. Poverty  Poverty is a big problem faced by policymakers  Government should provide the income to those who need it most  Poor families are more likely than the overall population to experience homelessness, drugs dependency, domestic violence, health problem, illiteracy, unemployment and low educational attainments.  Political philosophers hold various views about the role of the government in altering the distribution of income  Reducing inequality and poverty and promoting equity are important objectives of economics
  • 23. How to Reduce Poverty?  1. Minimum Wages Law:  Law setting a minimum or award wage that employers can pay workers are a perennial source of debate  Minimum wage is a way to help the working poor without any cost to government  Minimum wages can be understood by the tools of demand and supply  For workers with low level of skills and experience, a high award wage forces the wage above the level that balances supply and demand and it raises the cost of labor to firm and reduces quantity of labor as demanded which results in high unemployment
  • 24. How to Reduce Poverty ( cont.) 2. Social Security “Government programs that supplement the income of the needy”  The other way to reduce poverty is way to raise the living standards of the poor by government through social security programs  Social security programs includes unemployment benefits, old- age pension, family assistance allowances and disability payment  But criticism of SSP is that it creates incentives for people to become ‘needy’
  • 25. How to Reduce Poverty ( cont.)  3. Negative Income Tax:  “A tax system that collects revenue from high income households and gives transfer to low income households.”  Taxes collection affects the distribution of income  High income families pay high tax than low income families  The tax money should be spend on poor to minimize their number  Every family should report its income to the government
  • 26. How to Reduce Poverty ( cont.) 5. In-Kind Transfers  Providing poor the goods and services they need to raise their living standards  Those good and services includes food, shelter, clothes etc  In-kind transfer argue that such transfer that the poor get what they need most  Voucher Cards: Government should provide voucher cards to the poor so when they buy some food etc from any store, they can buy it on this card instead of giving money
  • 27. How to Reduce Poverty ( cont.)  5. Anti-Poverty Programs:  Encouraging the poor from escaping poverty  The adverse effect of high effective tax rate can persist over time  In addition, their children miss the lesson learned by observing parents with a full time job, and this may adversely affect their own ability to find and hold a job  These programs alter work attitudes and create a ‘culture of poverty’  Solution is that benefits to poor families should be reduced