How is income inequality defined within an economy?

Income inequality is defined as the degree to which income distribution is uneven among economic participants. This concept involves analyzing how income is shared across the population, which highlights the disparities that exist between individuals or groups within an economy. It encompasses who has the highest income and who has the lowest, as well as the gaps separating these groups. A focus on the uneven distribution allows economists and policymakers to better understand the economic landscape and address the social and economic factors contributing to inequality.

Understanding income inequality involves recognizing that it is not just about the total amount of wealth held by a certain percentage of the population or comparing extremes of income. While measures like the wealth held by the top 10% or the difference between minimum and maximum income levels can provide insights into inequality, they do not fully encompass the broader issue of distribution. Moreover, overall national wealth does not directly reflect income inequality, as it may be unequally distributed among the citizens. Therefore, the definition that captures the essence of income inequality recognizes the uneven distribution of income as a primary focus.