During a decade of structural economic change, the mean annual household disposable income in a country increased from £34,000 \pounds34,000\,£34,000 to £41,000\pounds41,000£41,000, while the median annual household disposable income fell from £29,000 \pounds29,000\,£29,000 to £27,000\pounds27,000£27,000. Which of the following is the most accurate economic interpretation of these changes regarding income inequality?
Income inequality has decreased because the rising mean income indicates that economic growth has successfully trickled down to raise the living standards of the average household.
Income inequality has increased, as the widening divergence between a rising mean and a falling median indicates that income growth was concentrated among higher-income households, skewing the distribution.
The Lorenz curve has shifted closer to the diagonal line of perfect equality, indicating that the Gini coefficient has fallen.
Relative poverty must have fallen because the substantial growth in mean income automatically raises the absolute income level of the lowest-income deciles.
16 exam-style questions on Edexcel A A Level Economics 4.2.2 Inequality. Each one has a worked solution and a mark scheme showing where the marks go.