⚖️ Equity vs Equality vs Efficiency
These three concepts are at the heart of the IB specification — and students often confuse them. Let's clear that up.
- Equity — what most people consider 'fair'. This is subjective and debated.
- Equality — a more extreme condition. Perfect equality would mean everyone earns the same.
- Efficiency — getting the most out of available resources.
The key trade-off: Equity and efficiency often conflict. A perfectly efficient market may produce very unequal outcomes. Redistributing to improve equity (e.g. high taxes) may reduce efficiency (e.g. lower work incentives).
Equity ≠ equality. Equity means 'fairness' (which people disagree on). Equality means 'same for everyone'. The IB specifically asks you to distinguish between these.
📈 The Lorenz Curve
Definition: The Lorenz curve shows how far a country's income distribution deviates from perfect equality.
How to read the diagram
- The 45° line (line of perfect equality) shows what the distribution would look like if everyone earned exactly the same income.
- The Lorenz curve bows below this line. The further it bows, the more unequal the distribution.
- The area between the line of equality and the Lorenz curve represents the degree of inequality.
Reading the curve: If the bottom 50% of the population earns only 20% of total income, the Lorenz curve passes through the point (50, 20) — far below the 45° line. This indicates significant inequality.
You must be able to draw the Lorenz curve in an exam. Label the axes: cumulative % of population (x), cumulative % of income (y). Draw the 45° line first, then the bowed curve below it.
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🔢 The Gini Coefficient
Definition: The Gini coefficient.
Interpreting the number
- 0 = perfect equality (Lorenz curve lies on the 45° line).
- 1 = perfect inequality (one person has all the income).
- Lower Gini = more equal distribution (e.g. Scandinavian countries ≈ 0.25–0.30).
- Higher Gini = more unequal distribution (e.g. South Africa ≈ 0.63, Brazil ≈ 0.53).
Calculation link to Lorenz curve
Gini = Area A ÷ (Area A + Area B), where Area A is between the 45° line and the Lorenz curve, and Area B is below the Lorenz curve. You won't need to calculate it, but you must understand the link.
When the Lorenz curve shifts closer to the 45° line, the Gini coefficient falls (more equality). When it bows further away, the Gini rises (more inequality). Use this to explain policy effects.