Question

“YOU’RE THE ECONOMIST: Pulling Back the Curtain on Income and Wealth Distribution” in Chapter 12. (1) What would happen to the Lorenz curve if it also included wealth distribution? (2) Do you think income and wealth are fairly or unfairly distributed? Should we be concerned with this issue? If you think we should be concerned with growing income and wealth inequality, what remedies would you recommend?

Answer 1

Question: (1) Income and Wealth Distribution”

What would happen to the Lorenz curve if it also included wealth distribution?

Solution:

For assessing the equal distribution of income and wealth, at macro level a govt. use the Lorenz curve is most commonly use in an economy. In 1905, an american economist Lorenze developed a curve with aimed of distribution of income in American economy. Wealth and income are two different things i.e., income is the earning from any source but wealth is the collection of all collected income from different sources. Wealth is an important part of a household as rather to less earning from the job , a household can maintain there standarad ofnliving with the stock of wealth.

Wealth distribution also includes Property, financial wealth, physical wealth, pension (govt. or private) etc. shown in figure

the following fig. shows that 38 % have zero wealth of physical and also 40 % have zero private pension of wealth. The inequality lies in financial wealth also where nearly 60 % population have neagative or debt in wealth . Only 10 % population enjoy 80 % of wealth in a nation. This shows the huge amount of inequality previal in the society. Thus, with the inclusion of wealth distribution the picture is more clear about the unequal disatribution in the economy.