This mental model applies the Pareto Principle (80/20 rule) to understand income inequality, as measured by the Gini Coefficient.
The Pareto Principle, also known as the 80/20 rule, states that roughly 80% of effects come from 20% of causes. This principle can be applied to the analysis of income inequality. The Gini Coefficient, a measure of income inequality, can often reflect a Pareto distribution. For instance, in a society where the Gini Coefficient is high, it's likely that a small percentage of the population holds a large proportion of the total income (20% of the population having 80% of the income, for example). This can help policy-makers identify and address income disparity issues.
Pareto's Principle - 20% of the population controls 80% of the wealth - Vilfredo Pareto
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