Question

When measuring the level of inequality in a country, we may also want to measure inequality among the poor.

a) Why may we want to do this? Explain briefly.b) Present and explain briefly two ways of measuring inequality among the poor that we have

seen in class.c) Foreachofyourmeasuresin(b),pointoneadvantageandoneshortcoming.

Answer 1

We measure income inequality such that proper financial as well as social help can be given to needy people such that they can also help in generating the income in long run.

Two ways from we can capture income inequality is Lorenz curve and Gini coefficient. Lorenz curve is depicted as % of population against %of income. The more bowed Lorenz curve shows more incom inequality. Gini coefficinet varies between 0 and 1. Higher the value of Gini coefficient, high is the inequality.

Benefit of Lorenz curve is that it can be understood by a layman. Shortcoming of Lorenz Curve is that it to be fully measured through scale, little change in shape of curve can lead to wrong analysis.

Benefit of Gini coefficient is that it clearly gives us a number which says what kind of income inequality is prevailing in society. Shortcoming of Gini coefficient is that is is comparatively difficult to calculate than Lorenz Curve.