A much of a good or service different

A key economic question for any
government regardless of their market organisation is “for whom to
produce?”.  This question deals with how
to distribute income or output and how much of a good or service different
individuals in a population should receive.  My interest in income inequality first started when I was studying
macroeconomics in my IB economics class. I was intrigued in how market systems
operated in allocating recourses in an economy and the effect of this on its
population.  After looking further into
this I was astonished at the extent of its affect, it not only was a decisive
factor in how a person´s life played out, but also is a key input in government
policy considerations. This piqued my interest in the topic, and made me wonder
how exactly it was measured.  Ultimately
leading to me investigating Modelling and calculating degrees of income
inequality, with the aim being to accurately model and represent income
inequality of nations using mathematics from the IB standard level syllabus,
and establish what the best measure is. 

 

All markets in the world operate
under a form of free market economics in which demand and supply functions
determine the price and how much of a good is produced.

Thus, in this situation, how many
goods and services an individual receives is based on their, or their
households´ income. Income is simply a payment for selling any of the 4 factors
of production: land, labour, capital or entrepreneurship Thus, the amount of
goods or services one receives is based off of the amount or the price of the
factors they are able to sell.  This is
problematic however as

 

“Ownership of
factors of production is highly unequal, and because the prices of factors of
production determined in the market vary enormously.”

Thus, while most people can provide recourses, some people cannot,
and may struggle to, if even, meet basis needs to survive: food, shelter, water
and clothing. Most societies believe that this is unjust, this idea has been
solidified in the universal declaration of Human rights that

 

 “Everyone has the right to a standard of living adequate for the
health and well-being of himself and of his family, including food, clothing,
housing and medical care and necessary social services.”

 

It is because of this that all governments around the world
strive to achieve a more equitable level of income distribution throughout
their populations.  However, in order to
correct this they must first calculate the level of income in their
economies. 

“An inequality measure is often a function
that ascribes a value to a specific distribution of income in a way that allows
direct and objective comparisons across different distributions.”

One
way in which to represent income inequality graphically is by constructing Lorenz
curves, a diagram which shows the degree of income inequality in a nation.