IB Economics: Equity in the distribution of income

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Lorenz curve
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illustrates the degree of equality of income distribution in an economy; plots the cumulative percentage of income received by cumulative shares of the population
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Gini coefficient
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= area between diagonal and Lorenz curve / entire area under diagonal
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poverty
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inability to afford an adequate standard of goods/services
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absolute poverty
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inability to afford a basic standard of goods/services, where this standard is absolute and unchanging
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relative poverty
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inability to afford an adequate standard of goods/services, where this standard is relative and changes over time and defined as a particular percentage of society’s median income
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transfer payments
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payments made by the government to individuals for the purpose of redistributing income
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proportional tax
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as income increases, the fraction of income paid as taxes remains constant
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progressive tax
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as income increases, the fraction of income paid as taxes increases
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regressive tax
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as income increases, the fraction of income paid decreases
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average tax rate
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tax paid divided by total income, expressed as a percentage
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marginal tax rate
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tax rate paid on additional income
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income distribution
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concerned with how much of an economy’s total income different groups in the population receive

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