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Teaching Resources
QCAA Economics Unit 2: Modified Markets

A game to teach income inequality, the Lorenz curve and Gini coefficient

BACKGROUND:​

I'm not particularly effective in teaching the mathematical elements of Economics, so I had to figure out a way to get students to understand the calculations and graphing of quintiles and deciles in Lorenz curve and Gini coefficient. 

For the first couple of years I did the 'chalk and talk' and - through some further review - most students seemed to get it. But it didn't feel like 'sticky learning'. It also didn't feel like the middle class students I taught genuinely appreciated the extent of income inequality in Australia.

Two reflection questions emerged: 

1. how can I get students to intuit the calculations and graphing of the Lorenz curve?

2. how can I get them to feel what it might be like to be in the lower income quintiles?

The method below is the result of this reflection. 

Resources required: 

  • ​Bundles of fake money - located in this link

    • The fake currency is in bundles of five notes equalling value of $100​

    • ​Each value is based on real data - I used Australia, USA, South Africa (the highest inequality), China, Netherlands, and then a perfectly equal society (5 people each get $20). 

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  • PPT slide to do graphing on the board - in this link​​​​​​

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Step 1: the set up

  • This activity requires students to be in groups of five. 

  • Try and spread groups apart so that they don't interact between groups. 

  • Provide each group with the five currency notes of a country 

  • Ensure that you give one group the 'perfectly equal' currency of 5 x $20 notes

  • Each group is a country, and each student will represent an income quintile within that country. 

  • Students can discuss how much money each member of their country has. 

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Step 2: small group graphing

  • Using ppt slide above, as a guide , students can draw the 'frame' for the Lorenz curve in their books.  

  • Guide class to find the lowest currency value in their group, explain how that is the % income of the lowest 20% of population in that country, and model how to place a point on their graph for the 20% (first) quintile. 

  • Do the same for the 40% (second) quintile. From there on in, the groups can usually figure out how to graph the remaining quintiles. 

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Step 3: whole group graphing

  • Using the ppt slide projected on the board, the class can now graph their curves. Start with the country of perfect equality. Then the other curves will sit a relative distance below your line of perfect equality. 

  • Then get students to plot the line of relative equality onto the graph in their books. 

  • I'd recommend plotting Australia as the second line. Then when you plot other nations, students can make predictions on the level of relative inequality, and provide reasons. ​

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Step 4: discussion

This is where I've found this activity to be most beneficial.

Some leaping off questions for you: 

  • Perfect equality country: how did it feel when you realised that you all earned the same income of $20? ​And then how did it feel when you realised that some people in other countries earn significantly more than you?

  • Low income people: how did it feel knowing others in your country earned much more than you? Did anyone try and snatch the currency of another person in their group - why?

  • Why does Netherlands exhibit more income inequality than USA (eg. political systems, government objectives, social structure, enterprise mindset etc)?

  • Compare the first quintile for China and Australia - they are equal. Is this what you would have expected - why?

  • Get some data on top 10%, top 5%, and top 1% of income earners for a selected economy.

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Step 5: Gini Coefficient 

Now you should be able to explain the Gini Coefficient with relative ease. I don't go down the path of calculating, but students tend to pick up on the Gini values - and the differences between countries - very quickly. 

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Step 6: Additional tasks / Review / Homework

  1. Examine the Lorenz curve for a country of your own interest. Add to your graph in your book. 

  2. Wealth inequality - what is the difference in Gini coefficient for wealth versus income inequality in Australia. What are some factors that may have contributed to this difference?

  3. Locate data on the changes in Australia's Gini coefficient over time.

    • Describe the changes using analysis tools (trends, % change, range etc).

    • Research three reasons for the change.

    • Predict future trends and evaluate implications. 

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