Public Welfare

 

Income Equality

1. The closer individual incomes are, the more equal the distribution. The more varied individual incomes are, the more unequal the distribution.

2. There are a few ways to measure how equal income distribution is:

   1. Income segments: Determine how one market group relates to another by comparing the percentage of total income (the sum of all incomes) held by each group.

   2. Lorenz curve: Shows the income distribution based on the cumulative percentages of income earned by percentage of the population. The curve is compared to a perfectly equal distribution (a straight line).

   3. Gini coefficient: Shows income distribution as a value between 1 (perfectly unequal) and 0 (perfectly equal). It is calculated by dividing the area between the perfectly equal distribution and the Lorenz curve by the total area between the perfectly equal and perfectly unequal distribution lines.

 

Government Intervention in the Market

1. Often governments create programs to change the income distribution.

   1. Subsidies: A low-income group receives money (or vouchers) for specified goods.

   2. Progressive taxes: Rich people are taxed at higher rates than poor people. Some of the money is then used to create programs to help the poor.

   3. Welfare: Low-income families receive cash and decide what goods they need.

   4. Unemployment benefits: Monetary benefits for those unable to find work.

   5. Price ceiling: To protect the poor, a product’s highest possible price is set, so the price is lower than equilibrium and more will be demanded than supplied.

   6. Price floor: To protect producers, a product’s lowest possible price is set, so the price is higher than equilibrium and more will be supplied than demanded.