IB Economics SL — Economics of Inequality and Poverty: Notes, Questions & Solutions

IB Economics SL — Economics of Inequality and Poverty: Notes, Questions & Solutions

How is income inequality measured?

Income inequality is measured using the Lorenz curve and Gini coefficient, while poverty is distinguished as absolute (an income below a fixed subsistence level) or relative (an income below a proportion of average income in a society).

Key points

• A Gini coefficient of 0 represents perfect equality; a value of 1 represents perfect inequality.

• The Lorenz curve plots the cumulative share of income against the cumulative share of the population.

• Absolute poverty uses a fixed income threshold (e.g. the World Bank’s international poverty line); relative poverty is defined against the median income within a country.

• This topic connects equity, one of the four macroeconomic objectives, to real policy debate.

Practice questions

1. What does a Gini coefficient of 0.4 indicate compared to one of 0.2? (Greater income inequality — a higher Gini coefficient means income is distributed less equally).

2. Distinguish between absolute and relative poverty. (Absolute poverty is measured against a fixed subsistence income level; relative poverty is measured against a proportion of the median income in a society).

3. What does the Lorenz curve plot on its two axes? (The cumulative percentage of population on one axis against the cumulative percentage of income received on the other).

4. Name one government policy that could reduce income inequality. (Progressive taxation, or increased spending on means-tested benefits).

5. Why can strong economic growth still coexist with rising inequality? (Growth can be unevenly distributed, benefiting higher-income groups disproportionately if there is no redistributive policy in place).

 

 Written by sortmyprep | Reviewed by IB Teacher | Last updated: September 15, 2026