Income Distribution

In a market economy, individuals' choices and consumption patterns are limited by how much money they have. No one (or very few) people are able to buy everything they would like to have, and so they have to make choices in tradeoff situations in order to best use what money they have. Obviously, the very poor have very limited choices, while the very rich have a wide range of choices. This discrepancy attracts the interest of social activists, the government, the general public, and economists alike. Economists study this inequality of means using measures of income distribution.

Economists look at several different statistics when studying income distribution, including the amount of income earned by segments of the population, the difference between actual and equal income distributions, and income mobility.

In this unit, we will look at the various ways of measuring and studying income distribution using Lorenz curves and Gini coefficients, and we will briefly look at different ways that the government tries to address issues in income distribution.