The likely benefits and costs of more equal and more unequal distributions
Making incomes more equal can reduce poverty but may weaken incentives to work or invest. Greater inequality can boost growth but leaves some people unable to meet basic needs.
Formula
Lorenz Curve / Gini Coefficient = area between Lorenz curve and line of equality ÷ total area below line of equality
Real World
Scandinavian countries like Denmark maintain high income taxes and generous welfare states, achieving Gini coefficients below 0.30 — among the world's lowest — while still sustaining strong GDP growth, suggesting equality and growth can coexist.
Exam Focus
Always evaluate both sides: state a benefit of equality AND a cost, then reach a justified conclusion for full marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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