Fairness and effectiveness

1. Inequality in income and wealth distribution

   1. Distr. Of income and wealth characteristics:

      1. Distr. by factor(functional distribution) – factors are: land(rent), labour(wages), entrepr. ability(profit), capital(interest).

!!! In Russia today – wages = 30-40% of GDP  labour isn’t a major source of income and people often try to find some illegal sources of income.

2. By size of income(we can divide population into groups(10%(decile), 20%(quintile), 25%(quartile))

Population	% of income	Sum of pop.	% sum
20%	6%	20%	6%
20%	10%	40%	16%
20%	17%	60%	33%
20%	22%	80%	55%
20%	45%	100%	100%

1. Lorenz curve(LC) – graphical income device, which shows the degree of inequality in income distribution by size.

2. Gini coefficient(GC) – shows the degree of inequality in income distribution.

!!! Soc. countries GC = 0,2 – 0,25

3. By occupation(region, industry, etc)

!!! Income – flow concept(received regularly)

!!! Wealth – stock concept(estimated at a particular time moment)

2. Inequal. in wealth distrib > Ineq. in income distrib.

   1. Factor of inheritance

   2. Differences in persomal propensities to save

   3. Inequality in income distribution

   4. Inequl. in individual productivity, talents, skill, etc…

1. Pareto efficiency and Edgeworth box.

   1. Pareto efficiency – takes place, when it’s not possible to improve the well being of anyone, without making someone else worth off.(we assume that there is only 2 people in the society)

   2. Pareto improvement – takes place, when changes in production and consumption can make at least one person better off, without making anyone worth off(X  Y)

3. Edgeworth box

   1. Pareto efficiency allocation:

      1. takes place, when there is no way to make all the people better off.

      2. all the gains from trade have been exhausted

      3. there are no mutually advantageous trades to be made.

   2. Contract curve(CC) – each person is on his highest possible IC, given the IC of the other person.