Dispersion and Inequalities
Measures of Dispersion
Dispersion refers to the extent to which data values spread out or scatter
around a central value, such as the mean or median. While measures of central
tendency (like the mean, median, and mode) identify the center of data,
measures of dispersion reveal how much the data varies or deviates from this
center.
Properties of a Good Measure of Dispersion
For a measure of dispersion to be effective, it should ideally meet the following
criteria:
1. Simplicity: It should be easy to understand.
2. Ease of Calculation: It should be straightforward to compute.
3. Rigidity: The measure should have a clear definition.
4. Inclusiveness: It should take every data point into account.
5. Algebraic Treatment: It should be usable in further calculations.
6. Sampling Stability: It should be stable across different samples.
7. Resistance to Extremes: Extreme values should not unduly influence the
measure.
Types of Dispersion
Dispersion can be categorized into two types:
1. Absolute Dispersion
● Expressed in the same units as the original data (e.g., marks, height).
● Suitable for assessing variability within a single dataset.
● Not ideal for comparing datasets measured in different units.
2. Relative Dispersion (Coefficient of Dispersion)
● Expressed as a ratio or percentage of absolute dispersion to an average,
enabling comparison across datasets with different units.
● Preferred in practical applications for comparative studies.
Methods of Measuring Dispersion
Dispersion can be measured using two main approaches: mathematical
methods and graphical methods.
I. Mathematical Methods
Mathematical methods provide specific numerical values to quantify the degree
and extent of variability.
● Range
● Quartile Deviation (Interquartile Range)
● Mean Deviation
● Standard Deviation and Coefficient of Variation
II. Graphical Methods
Graphical methods visually depict the degree of dispersion, especially useful
when evaluating the extent of variation rather than precise measurements.
1. Lorenz Curve: A graphical representation that shows the cumulative
distribution of data. Often used to analyze inequality, such as income
distribution.
Range
● It is the simplest method of studying dispersion.
● The range is the difference between the smallest value and the largest
value of a series.
● Does not account for data frequency, so it is most effective for a quick
estimate of spread.
Quartile Deviations (Q.D.)
● Measures dispersion based on the spread between the first (Q1) and third
(Q3) quartiles.
● Quartile Deviation is also called the ‘interquartile range’.
● The lower or first quartile (Q1) divides the lower half of the distribution
into two equal parts, i.e., it is the value below which 25% of the
observations lie and above which 75% of the observations lie.
● The upper or third quartile (Q3) divides the upper half of the distribution
into two equal parts, i.e. it is the value below which 75% of the
observations lie and above which 25% of the observations lie.
● The difference, Q3 – Q1 is called the interquartile range and QD is given
by (Q3 – Q1) / 2 For grouped data, Q1 is the value that corresponds to the
cumulative frequency of N/4 and Q3 is the value that corresponds to the
cumulative frequency of 3N/4.
Formula to Quartile Deviation
● In the case of raw data, after arranging the data in the
ascending order:
● In the case of frequency distribution or grouped data:
● Where L1 is the lower boundary of the first quartile
class, m1 is the cumulative frequency up to the first
quartile class, f1 is the frequency in the first quartile class
and c is the width of the class interval:
● Where L3 is the lower boundary of the third quartile class,
m3 is the cumulative frequency up to the third quartile class,
f3 is the frequency in the third quartile class and c is the
width of the class interval:
● The relative measure of QD is known as the quartile
coefficient of dispersion (QC):
Mean Deviation
Mean deviation is defined as a value that is obtained by taking the average of
the deviations of various items from a measure of central tendency. Mean or
Median or Mode, ignoring negative signs.
Mean Deviation Formula
● Mean Deviation = [Σ |X – µ|]/N
Where,
○ Σ represents the addition of values
○ X represents each value in the data set
○ µ represents the mean of the data set
○ N represents the number of data values
○ | | represents the absolute value, which ignores the “-” symbol
● If the data set consists of values x1,x2, x3………in each occurring with a
frequency of f1, f2… fn respectively then such a representation of data is
known as the discrete distribution of frequency.
To calculate the mean deviation for grouped data and particularly for discrete
distribution data the following steps are followed:
● Step I: The measure of central tendency about which mean
deviation is to be found is calculated. Let this measure be a.
If this measure is mean then it is calculated as,
where N=∑ni=1fi
● Step II: Calculate the absolute deviation of each observation from the
measure of central tendency calculated in step (I)
● Step III: The mean absolute deviation around the
measure of central tendency is then calculated by using
the formula:
○ If the central tendency is mean then,
○ In the case of median:
Standard Deviation
The standard deviation, which is shown by the greek letter s (sigma) is
extremely useful in judging the representativeness of the mean. The concept of
standard deviation, which was introduced by Karl Pearson has a practical
significance because it is free from all defects, which exist in a range, quartile
deviation or average deviation.
Formula
● The standard deviation is defined as the
deviation of the values or data from their
average mean.
● The square root of the variance gives the
standard deviation, which measures the
dispersion of data points in the same units
as the original data.
● A lower standard deviation will conclude that the values are very close to
their average.
● On the other hand, higher values mean the values are far from the mean
value.
● It should be noted here that the standard deviation value can never be
negative.
Where,
○ σ: Standard Deviation
○ xi: ith terms Given in the Data
○ overline {x}: Mean
○ N: Total number of Terms
○ fi: ith frequency
● Standard Deviation Formula Based on Discrete
Frequency Distribution:
x=x1,x2,x3,….,xn and f=f1,f2,f3,….,fn
Coefficient of Variation
● The coefficient of variation is a measure of spread that describes the
amount of variability relative to the mean.
● The coefficient of variation (CV) is the ratio of the standard deviation to
the mean (average). For example, the expression “The standard deviation
is 15% of the mean” is a CV.
● The CV is particularly useful when you want to
compare results from two different surveys or tests
that have different measures or values.
The Lorenz Curve – Measuring Income Inequality
The Lorenz Curve is one of the most widely recognized tools used to illustrate
and measure income inequality within a population. This curve, proposed by
American economic statistician Prof. Max D. Lorenz, visually demonstrates
disparities in income distribution, making it invaluable for understanding
economic inequality within a society.
Constructing the Lorenz Curve
The Lorenz Curve is a cumulative frequency graph that requires the following
components:
● Population Percentage: Represented on the X-axis, this denotes the
cumulative percentage of the population in a country or region.
● Income Percentage: Represented on the Y-axis, this shows the
cumulative percentage of income held by that portion of the population.
Steps to Construct the Lorenz Curve
1. Organize Data in Cumulative Percentages:
Arrange data on population and income in
percentage terms to form a cumulative
distribution.
2. Plot the Line of Equal Distribution:
○ Draw a straight line from the origin
(0,0) to the point (100,100) on the
graph. This line represents perfect
income equality – where income is
distributed equally across all population segments.
○ The closer a country’s income distribution curve aligns with this line,
the more equitable the income distribution.
3. Plot the Actual Income Distribution:
○ Calculate and plot the actual cumulative percentages of income for
each cumulative population segment.
○ Connect these points to form the Lorenz Curve.
Interpretation of the Lorenz Curve
● Line of Equal Distribution: This line serves as a benchmark for equal
income distribution, where each percentage of the population holds an
equivalent percentage of total income.
● Deviation from the Line:
○ If a country’s actual income distribution curve coincides with this
line, it implies perfect equality – each percentage of the population
earns exactly the same percentage of total income.
○ The greater the deviation of the Lorenz Curve from the line of equal
distribution, the more unequal the income distribution.
Limitations of the Lorenz Curve
Despite its advantages, the Lorenz Curve has certain limitations that affect its
usability in policy and research:
1. Lack of Quantitative Precision: The curve provides a visual
representation of inequality but does not quantify it in a single value,
making it challenging for policymakers who may require numerical
indicators.
2. Crossing Curves Issue:
○ If Lorenz Curves for two different populations cross each other, they
provide ambiguous information, making it difficult to rank income
distributions for inequality directly.
○ In cases of crossing curves, other quantitative measures may be
necessary for a definitive assessment of inequality.
Applications of the Lorenz Curve
The Lorenz Curve is primarily used in economic and policy research to:
● Analyze and compare income distribution within and across countries.
● Assess the impact of economic policies or reforms on income inequality.
● Monitor changes in income distribution over time within a population.
The Gini Coefficient – Understanding Economic Inequality
The Gini Coefficient, also known as the Gini Ratio, is a prominent statistical
measure used to evaluate the economic inequality within a nation or region. It
quantifies the income or wealth distribution of a population, helping
policymakers and economists understand the level of economic disparity.
Named after Italian statistician Corrado Gini, who first introduced it in 1912, the
Gini Coefficient has become the most frequently used measure of economic
inequality worldwide.
Calculation of the Gini Coefficient
The Gini Coefficient varies on a scale from 0 to 1:
● 0 represents perfect equality, meaning that all individuals have an
identical share of wealth or income.
● 1 indicates perfect inequality, where a single individual or entity holds all
wealth or income within a country.
In practical terms, no nation exhibits complete equality or inequality. Instead,
countries typically fall between these extremes:
● High Gini Coefficients (closer to 1) indicate high income inequality.
● Low Gini Coefficients (closer to 0) suggest a more equal income
distribution.
A Gini Coefficient below 0.4 is often regarded as tolerable in terms of income
inequality, although this threshold may vary depending on economic and social
contexts.
Principles of the Gini Coefficient
The Gini Coefficient operates under several key principles, making it versatile
and unbiased in its measurement:
1. Anonymity:
○ The Gini Coefficient is concerned only with the distribution of
income or wealth, not with identifying specific individuals as rich or
poor.
2. Scale Independence:
○ The Gini Coefficient remains consistent regardless of the economy's
size, wealth level, or the units used for measurement. Therefore,
countries with varying wealth levels may share similar Gini
Coefficients if their income distributions are alike.
3. Population Independence:
○ The measure is not influenced by the population size; thus,
comparisons between countries with different populations remain
valid.
4. Transfer Principle:
○ According to this principle, if income transfers from a wealthier
individual to a poorer individual, the Gini Coefficient should reflect a
reduction in inequality.
Graphical Representation of the Gini Index
The Gini Index is often
represented graphically
using the Lorenz Curve.
This graph provides a
visual interpretation of
income distribution:
1. Axes:
○ The X-axis represents the cumulative percentage of the population
(sorted from poorest to richest).
○ The Y-axis represents the cumulative percentage of income.
2. Line of Perfect Equality:
○ A straight 45-degree line from the origin to (100%, 100%)
represents perfect equality, where each segment of the population
earns an equal portion of total income.
3. Lorenz Curve:
○ The Lorenz Curve is plotted based on the actual distribution of
income. The more the Lorenz Curve deviates from the line of perfect
equality, the greater the level of inequality.
4. Calculating the Gini Coefficient:
○ The Gini Coefficient is computed as the area between the Lorenz
Curve and the line of perfect equality, divided by the total area
beneath the line of perfect equality.
○ Mathematically, it is twice the area between the Lorenz Curve and
the line of perfect equality. Therefore, the greater this area, the
higher the Gini Coefficient and the greater the level of inequality.
Applications of the Gini Coefficient
The Gini Coefficient is widely used for:
1. Comparing Income Inequality across countries or regions, providing
insights into economic disparities.
2. Assessing Fiscal Policy Effectiveness, particularly in evaluating whether
taxes and social transfers reduce income inequality.
3. Analyzing Economic Development to study the relationship between
inequality and growth, often used in policymaking.
