Understanding Income Distributions

📋 Course Outline

1. Income histograms and log scale
2. Density plots of income
3. ECDFs and country comparison

📖 1. Income histograms and log scale

🔑 Key Concepts & Definitions

• Income histogram : An income histogram is a bar chart that groups income values into intervals and shows how often each interval occurs as frequency.
• Log income : Log income is an income variable transformed by taking its logarithm so income changes are displayed on a multiplicative scale.

📝 Essential Points

• The histograms in the material use Income on the horizontal axis and Frequency on the vertical axis for Europe incomes.
• One histogram switches to Log income on the horizontal axis while keeping Frequency on the vertical axis for Europe incomes.

💡 Memory Hook

Log scale turns “multiplying income” into “adding distance” on the x-axis, so spread at high incomes looks less compressed.

📖 2. Density plots of income

🔑 Key Concepts & Definitions

• Income density : Income density is a distribution summary that describes how concentrated income values are across possible incomes.
• Density plot of income : A density plot of income is a smooth curve replacing histogram bars, showing the estimated income density across the income axis.

📝 Essential Points