Lecture Notes: Chapter 18 – Economic Inequality
Based on Microeconomics: Canada in the Global Environment (11th Edition)
Introduction
Economic inequality refers to the unequal distribution of income and wealth among individuals
and groups in a society. While some inequality reflects differences in education, experience, and
effort, excessive or persistent inequality can raise concerns about fairness, opportunity, and
social cohesion. This chapter explores how income and wealth are distributed in Canada and
internationally, the causes and consequences of economic inequality, and how governments—
especially in Canada—intervene through income redistribution to reduce inequality and
promote equity.
1. Income vs. Wealth: Understanding the Concepts
1.1 Income
Income is the flow of money received over a period of time from wages, salaries, investments,
pensions, and government transfers.
Market income: Income from labour and capital before taxes or transfers.
Disposable income: Income after taxes and transfers (what households actually spend).
1.2 Wealth
Wealth is the total value of assets owned at a point in time, including real estate, stocks, savings,
and business equity, minus debts.
Wealth is more unequally distributed than income and tends to accumulate over generations.
2. Measuring Inequality
2.1 Lorenz Curve
A Lorenz curve shows the cumulative share of income received by cumulative shares of the
population.
Graph Description:
, X-axis: Cumulative % of households (from poorest to richest)
Y-axis: Cumulative % of income
A perfectly equal distribution is a 45° diagonal line.
The further the Lorenz curve is from the diagonal, the greater the inequality.
2.2 Gini Coefficient
The Gini coefficient quantifies inequality based on the Lorenz curve.
Ranges from 0 (perfect equality) to 1 (perfect inequality).
Gini index is often expressed as a value between 0 and 100.
3. Income and Wealth Distribution in Canada
3.1 Income Distribution Trends
Top 20% of Canadian households earn around 47% of total income.
Bottom 20% earn roughly 5%.
Middle-income households have seen stagnation in income growth since the 1980s.
3.2 Wealth Distribution Trends
Top 10% of Canadians own nearly 60% of net wealth.
Bottom 50% hold less than 10%.
Wealth inequality has risen faster than income inequality due to rising asset values and
housing prices.
3.3 Trends in Inequality in Canada
Canada’s Gini coefficient (after taxes and transfers) hovers around 0.30 to 0.33, showing
moderate inequality.
Market income inequality has risen, but government redistribution offsets some of this
increase.
Based on Microeconomics: Canada in the Global Environment (11th Edition)
Introduction
Economic inequality refers to the unequal distribution of income and wealth among individuals
and groups in a society. While some inequality reflects differences in education, experience, and
effort, excessive or persistent inequality can raise concerns about fairness, opportunity, and
social cohesion. This chapter explores how income and wealth are distributed in Canada and
internationally, the causes and consequences of economic inequality, and how governments—
especially in Canada—intervene through income redistribution to reduce inequality and
promote equity.
1. Income vs. Wealth: Understanding the Concepts
1.1 Income
Income is the flow of money received over a period of time from wages, salaries, investments,
pensions, and government transfers.
Market income: Income from labour and capital before taxes or transfers.
Disposable income: Income after taxes and transfers (what households actually spend).
1.2 Wealth
Wealth is the total value of assets owned at a point in time, including real estate, stocks, savings,
and business equity, minus debts.
Wealth is more unequally distributed than income and tends to accumulate over generations.
2. Measuring Inequality
2.1 Lorenz Curve
A Lorenz curve shows the cumulative share of income received by cumulative shares of the
population.
Graph Description:
, X-axis: Cumulative % of households (from poorest to richest)
Y-axis: Cumulative % of income
A perfectly equal distribution is a 45° diagonal line.
The further the Lorenz curve is from the diagonal, the greater the inequality.
2.2 Gini Coefficient
The Gini coefficient quantifies inequality based on the Lorenz curve.
Ranges from 0 (perfect equality) to 1 (perfect inequality).
Gini index is often expressed as a value between 0 and 100.
3. Income and Wealth Distribution in Canada
3.1 Income Distribution Trends
Top 20% of Canadian households earn around 47% of total income.
Bottom 20% earn roughly 5%.
Middle-income households have seen stagnation in income growth since the 1980s.
3.2 Wealth Distribution Trends
Top 10% of Canadians own nearly 60% of net wealth.
Bottom 50% hold less than 10%.
Wealth inequality has risen faster than income inequality due to rising asset values and
housing prices.
3.3 Trends in Inequality in Canada
Canada’s Gini coefficient (after taxes and transfers) hovers around 0.30 to 0.33, showing
moderate inequality.
Market income inequality has risen, but government redistribution offsets some of this
increase.
