Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
C) Measures of inequality: o Gini coefficient o Lorenz curve (diagrammatic…
Full specification wording
Poverty and inequality: c) Measures of inequality: o Gini coefficient o Lorenz curve (diagrammatic analysis)
Inequality is measured using the Gini coefficient and the Lorenz curve.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 3 of 3
- 2 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
Inequality is measured using the Gini coefficient and the Lorenz curve. The Lorenz curve provides a diagrammatic analysis of income or wealth distribution, plotting the cumulative percentage of the population on the x-axis against the cumulative percentage of income on the y-axis. A perfectly equal society is represented by a 45-degree line of equality. The further the Lorenz curve sags below this line, the greater the inequality. The Gini coefficient quantifies this by calculating the ratio of the area between the line of equality and the Lorenz curve to the total area under the line of equality. It yields a value between 0 (perfect equality) and 1 (perfect inequality).
What earns the marks
- Draw and interpret a Lorenz curve, correctly labelling the cumulative percentage of population and cumulative percentage of income.
- Explain that the 45-degree line represents perfect equality, where every percentile of the population earns the same percentage of total income.
- Define the Gini coefficient as a numerical measure of inequality, calculated from the areas on a Lorenz curve diagram.
- State that a Gini coefficient of 0 indicates perfect equality, while a coefficient of 1 indicates perfect inequality.
Common mistakes and how to put them right
Labelling the axes of the Lorenz curve incorrectly.
Put it right: The x-axis must be the cumulative percentage of the population, and the y-axis must be the cumulative percentage of income or wealth.
Believing a higher Gini coefficient means greater equality.
Put it right: A higher Gini coefficient (closer to 1) indicates greater inequality, as the Lorenz curve is further from the line of equality.
Confusing the Lorenz curve with the Laffer curve.
Put it right: The Lorenz curve measures inequality, whereas the Laffer curve illustrates the relationship between tax rates and tax revenue.
Exam tips
- Practice drawing the Lorenz curve accurately, ensuring the curve never crosses the 45-degree line of equality and starts at (0,0) and ends at (100,100).
- When comparing two countries, remember that the country with the Lorenz curve closer to the line of equality has a lower Gini coefficient and a more equal distribution of income.
- Be ready to interpret changes in the Gini coefficient over time to assess the effectiveness of government redistribution policies.
Try the lesson
The start of the Poverty and inequality: c) Measures of inequality: o Gini coefficient o Lorenz curve (diagrammatic analysis) lesson, made from checked teaching notes for this specification point.
Have a go first
What does a Gini coefficient of 0 represent in an economy?
Listen
Inequality is measured using the Gini coefficient and the Lorenz curve. The Lorenz curve provides a diagrammatic analysis of income or wealth distribution, plotting the cumulative percentage of the population on the x-axis against the cumulative percentage of income on the y-axis. A perfectly equal society is represented by a 45-degree line of equality. The further the Lorenz curve sags below this line, the greater the inequality. The Gini coefficient quantifies this by calculating the ratio of the area between the line of equality and the Lorenz curve to the total area under the line of equality. It yields a value between 0 (perfect equality) and 1 (perfect inequality). A strong answer earns marks for these points. Draw and interpret a Lorenz curve, correctly labelling the cumulative percentage of population and cumulative percentage of income. Explain that the 45-degree line represents perfect equality, where every percentile of the population earns the same percentage of total income. Define the Gini coefficient as a numerical measure of inequality, calculated from the areas on a Lorenz curve diagram. State that a Gini coefficient of 0 indicates perfect equality, while a coefficient of 1 indicates perfect inequality. A common slip: Labelling the axes of the Lorenz curve incorrectly. Instead, the x-axis must be the cumulative percentage of the population, and the y-axis must be the cumulative percentage of income or wealth. Exam tip: Practice drawing the Lorenz curve accurately, ensuring the curve never crosses the 45-degree line of equality and starts at (0,0) and ends at (100,100).
Key words
Say what each word means before you turn the card.
Lorenz curve
Try answering aloud or in your head before turning the card.
Line of equality
Try answering aloud or in your head before turning the card.
See every definition
- Lorenz curve
- A diagrammatic analysis of income or wealth distribution, plotting the cumulative percentage of the population on the x-axis against the cumulative percentage of income on the y-axis.
- Line of equality
- A 45-degree line representing a perfectly equal society, where every percentile of the population earns the same percentage of total income.
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