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2012-05-21 Gini Index Worksheet

# 2012-05-21 Gini Index Worksheet

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Name:_________________________ Date:___________________________ Band:________Calculus | Packer Collegiate InstituteIncome Inequality
1

Prelude: Estimation
Imagine if you line up all the adults in the United States based on yearly income. Then divide up this line of people into 5 equal parts. Add up all the wealth for each of these groups. What percent of the
total income
of all the adults in the US do you think each of these groups will get?Estimation of True Distribution:Lowest fifth Second fifth Third fifth Fourth fifth Highest fifthWhat do you think the distribution
ought to be
, in a healthy economy?Estimation of Ideal Distribution:Lowest fifth Second fifth Third fifth Fourth fifth Highest fifth
Now we’ll

look at your distributions graphically… Put lines separating each fifth, and color each section a
different color.Estimation of True Distribution:Estimation of Ideal Distribution:To find out the
true
1

Gini Index
Part I: Income Distribution
The distribution of income in our society is a concept of ongoing interest to economists, politicians, publicpolicy analysts, and other concerned individuals. In a capitalistic society such as the US, perfect equity inincome distribution is neither possible nor desired. There would be no incentive to develop new products if
you weren’t able to capitalize on your invention. However, ther
e is also a limit to how much of the totalincome should be controlled by a small group. Some suggest that this inequity in income distribution is playing
an important role in the unrest apparent in Tunisia, Egypt, Yemen, and Bahrain. In the US, are the “r
ich getting
richer, and the poor getting poorer” and is the “middle class disappearing” as some politicians suggest? And if
so, how could you tell?
To quantify distribution of income in a country, economists consider the percent of the country’s total inc
omethat is earned by certain groups of the population. To understand how this is done, we will consider a verysmall society consisting of the individuals with the following jobs and salaries:

1. Organize the data in order of increasing income. And find the total income for this society.
1.

6. 11. 16. 21.2.

7. 12. 17. 22.3.

8. 13. 18. 23.4.

9. 14. 19. 24.5.

10. 15. 20. 25.
Total income for each
fifth
:
Lowest Fifth Second Fifth Third Fifth Fourth Fifth Highest Fifth
Total income for all people:2. Obtain the percentage of income for each fifth by dividing the income of the fifth by the total income of thewhole society.
Lowest Fifth Second Fifth Third Fifth Fourth Fifth Highest Fifth
3. In a perfectly equitable society, what would we get for these percentages? (Note: I am not talking about the
best

society… I am asking you to take the word
equitable
literally.)
Lowest Fifth Second Fifth Third Fifth Fourth Fifth Highest Fifth
Economists have developed a very intuitive measure of the inequality of the distribution of incomes byconsidering the cumulative income. The cumulative data can be obtained by adding up the percentages foreach fifth. For example, suppose we had a society with the following distribution of income: