Poverty, Inequality, and Social Welfare

(Monopoly Analogy)

What so bad about extreme inequality?

1. Income inequality -refers to the varying incomes of different socioeconomic groups in
an economy.
-also called as “Income Gap” – it highlights the gaps between those
with the highest and lowest incomes in a country, region, people, or the whole
world.

What TRIGGERS Income Inequality?

 Male vs. Female workers
 Young vs. Older workers
 College Grad Vs. Undergrad

2. A person experienced extreme income can change his surroundings. If you experience
extreme income, it strengthens your political power.

3. Extreme Inequality is literally, obviously, clearly, visibly, undoubtedly, absolutely UNFAIR

period (.) and that is very disproportionate.

DUALISTIC DEVELOPMENT & SHIFTING LORENZ CURVES: SOME STYLIZED TYPOLOGY

1. The Modern Sector Enlargement Growth Typology (READ)
- L1 represents Lorenz curve, L2 represents the new one
- Each modern sector household receives the same absolute income as before, but
now the share received by the richest income group is smaller than before.
- It explains why the new Lorenz curve lies above the old one at the higher end of
income distribution scale.
- The Old and New Lorenz Curve must cross each other.

2. The Modern Sector Enrichment Growth Typology (READ)

- This aggravates inequality with households with lower scale of income which will either
have no effect or aggravate poverty.
- It actually trying to shift downward and further from the line of equality.

3. The Traditional Sector Enlargement Growth Typology (READ)

(EXPLAIN the graph)(line of equality, 0-100, Lorenz curve)
- It leads to a more equal relative distribution of income, and that culminates into
reduced poverty.
- It actually trying to shift closer toward the line of inequality.

Kuznet’s Inverted-U Hypothesis

- It was suggested by Simon Kuznets
- A curve which shows that as an economy develops, economic inequality first
increases and then decrease

Explanation as why inequality wight worsen

- The wages and productivity were high but employment is limited
- The need of educated workers increases but the supply of unskilled worker falls