Income Inequality and Gini Coefficient

Mr. Schmidt explains income inequality, a type of market failure, by discussing how governments measure income distribution using quintiles. He introduces the Lorenz Curve, a model that visually represents income inequality, and explains the Gini Coefficient, a statistical measure of income distribution. The video emphasizes understanding these concepts rather than calculating them.

What does income inequality refer to?

• Government control of all income

• Unequal distribution of income across a society

• Perfect income equality

• Equal distribution of wealth among all families

How does the government measure income distribution?

• By dividing families into ten groups

• By using a single income bracket

• By calculating the average income

• By dividing families into five equal groups called quintiles

What is perfect income equality?

• When 20% of families control 80% of the income

• When each quintile controls an equal percentage of the nation's income

• When the richest quintile controls all the income

• When the government redistributes all income equally

What is the Lorenz Curve used for?

• To determine the richest families in a society

• To measure the total wealth of a nation

• To compare actual income distribution with perfect equality

• To calculate the average income of a country

What does the gap between the Lorenz Curve and the line of perfect equality represent?

• The average income of the poorest quintile

• The number of rich families

• The level of income inequality

• The total wealth of a nation

What might a government do to reduce income inequality?

• Eliminate all taxes

• Implement taxes or subsidies to help poorer families

• Provide subsidies to wealthier families

• Increase taxes on the poor

What does a Gini Coefficient of zero indicate?

• No income distribution data available

• Perfect income equality

• A high level of wealth concentration

• Perfect income inequality

What does a Gini Coefficient of one signify?

• Equal distribution of wealth

• No income inequality

• Perfect income inequality

• Perfect income equality

How is the Gini Coefficient calculated?

• By calculating areas under the Lorenz Curve

• By dividing the total income by the population

• By counting the number of families

• By measuring the average income

What does a Gini Coefficient closer to zero indicate?

• Lower income inequality

• Higher income inequality

• No income data available

• Equal wealth distribution among the richest