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a. Describe the relationship that the so-called Lorenz curve traces out. b. Many of the most...

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.

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Answer #1

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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