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Small Farm 1
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Pov'ty Indicators
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Poverty
Econ. of Scale(1)
Income Elasticity
Infant Industries
Commodity Mkts
Econ. of Scale(2)
Lorenz Curve
Malthus
Measuring Pov'ty
Perf. Competition
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Home Field Trips Rural Life and Agriculture Tour Lorenz Curves and Gini Coefficients

Theories

Lorenz Curves and Gini Coefficients

Next theory - Malthus and The Law of Diminishing Returns >>

Lorenz curves are an effective way of showing inequality of income within and between countries. The cumulative percentage of population is plotted along the horizontal axis whilst the cumulative percentage of income is plotted along the vertical axis. The curve shows the actual relationship between the percentage of income recipients and the percentage of income that they did in fact actually receive.

The 45 degree line shows the situation when there is a even distribution of income i.e. 20% of the population earns 20% of the income and 50% of the households earn 50% of the income and so on. This is called the line of absolute equality.

The closer the Lorenz curve of a country is to the 45-degree line the more equal the distribution of income is. In the case of the Lorenz curve in the diagram above 20% of the population earns 5% of the income and 50% of the population earns 20% of the income. The more the Lorenz curve bends away from the 45-degree line of absolute equality, the less equal is the distribution of income. In reality no country exhibits a totally equitable distribution of income.

The ratio between the areas A and B (B being the whole triangle under the line of absolute equality) is called the Gini Coefficient. If a country had a completely even distribution of income the areas A and B would be the same and the Gini Coefficient would be zero. If the income were distributed so unevenly that one person had 100% of all the countries income and the rest of the population had nothing the Gini Coefficient in this case would be one. The closer the Gini Coefficient to one the greater the inequality of income distribution. Countries with Gini Coefficients between 0.5 and 0.7 are regarded as having unequal income distributions whilst countries having Gini Coefficients between 0.2 and 0.35 are considered to have relatively equitable.

One use of Gini coefficient is to examine how the distribution of income varies between sectors of the population. In Zambia the Gini Coefficient differs between the rural and urban populations. The table below shows that the distribution of income in rural areas is more unequal than urban areas.

It can also be used to indicate how the distribution of income has changed within a country over a period of time.

Whilst level of GDP per capita is a measure of economic growth one should also keep an eye on the Gini Coefficient. A country showing evidence of economic growth, but with an increasing Gini Coefficient, means that income is becoming less evenly distributed indicating that development and poverty are not necessarily improving.

Next theory - Malthus and The Law of Diminishing Returns >>