Embedded Files
An example of a lorenz curve: A country has the following income distribution (all figures in $):
Bill 1500; Zak 2000;Robert 8000; Jose 9000; Erika 10000; Kai 12000; Juan 15000; Harry 16000; Kathleen 20000; Emily 30000;
Calculate the total income in the country
Calculate each person's % of total income
Calculate the cumulative % of each decile, starting from the poorest 10% to the richest.
Map this on a graph.
You have created a lorenz curve!
Another example:
P303 Tragakes
The 45 degree line (Green line) shows perfect equality so the further a country's lorenz curve is from this the less equality there is.
And a nice revision video if you need it:
Explain how the Gini coefficient is derived and interpreted.
The Gini coefficient is the numerical representation of the lorenz curve. For example in the diagram above there is an area below the green line but above the lorenz curve. Let's call this area A. There is also an area below the lorenz curve let's call this Area B.
Gini Coefficient= A/A+B
If a country had perfect equality there would be no area A and so the Gini coefficient would be 0
If there was perfect inequality then there would be no area B and so the Gini coefficient would be 1.
We can summarise this by saying that the lower the value the greater the equality. Anything over 0.5 would be relatively unequal. Often the Gini value is also expressed as a value between 0-100. Now look up the data on the link below.
Also updated data on China 2011
Distinguish between absolute poverty and relative poverty.
Explain possible causes of poverty, including low incomes, unemployment and lack of human capital.
Explain possible consequences of poverty, including low living standards, and lack of access to health care and education.
The role of taxation in promoting equity
• Distinguish between direct and indirect taxes, providing examples of each, and explain that direct taxes may be used as a mechanism to redistribute income.
• Distinguish between progressive, regressive and proportional taxation, providing examples of each.
Activity:now open the document below and match the explanations to the words.
HL STUDENTS ONLY:
Calculate the marginal rate of tax and the average rate of tax from the data below.
Annual Taxable Income Tax Rate (%) in Indonesia
• Up to IDR 50 million= 5%
• Over IDR 50 million to IDR 250 million= 15%
• Over IDR 250 million to IDR 500 million= 25%
• Over IDR 500 million= 30%
How much tax would the following pay and what would their average and marginal tax rates be?
a) a person earning 100 million IDR per year
b) a person earning 600 million IDR per year
HL Taxation question:
The diagram below is known as the laffer curve. What does it tell us about the disincentive effect of high income tax rates
Summative Assesment Task
Essay:
Explain the relationship between the Lorenze Curve and the Gini Coefficient (10)
Evaluate the effectiveness of the various methods that governments may use to redistribute income (15)
redistribution_of_Income essay plans.pdfFor extension activity if you feel confident with this topic -watch this excellent Ted Talk and answer the questions below:
How economic inequality harms societies
Page updated
Google Sites
Report abuse