By the end of this section, you will be able to:

• Explain the distribution of income, and analyze the sources of income inequality in a market economy

• Measure income distribution in quintiles

• Calculate and graph a Lorenz curve

• Show income inequality through demand and supply diagrams

Poverty levels can be subjective based on the overall income levels of a country. Typically a government

measures poverty based on a percentage of the median income. Income inequality, however, has to do with the

distribution of that income, in terms of which group receives the most or the least income. Income inequality

involves comparing those with high incomes, middle incomes, and low incomes—not just looking at those

below or near the poverty line. In turn, measuring income inequality means dividing the population into

various groups and then comparing the groups, a task that we can be carry out in several ways, as the next

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