a. Describe the relationship that the so-called Lorenz curve traces out.
b. Many of the most commonly used measurements of the size income distribution are related to the Lorenz curve. Give two examples.
a) The Lorenz curve is a graphical representation of income inequality. The Lorenz curve plots population percentiles on the horizontal axis and cumulative income on the vertical axis, depicting the relationship between population and income/wealth held by that percentile of the population, thus depicting income inequality.
The Lorenz curve has a 45-degree line of perfect equality passing through the origin.
b) Gini coefficient is a numerical measure of income inequality based on Lorenz curve. It is used to represent distributional inequality. It is the area between the Lorenz curve and the 45-degree line of equality divided by the remaining area below the Lorenz curve.
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