Question

There are only two members of a community whose names are Jack and Jane. Jack earns $10,000 and Jane earns $40,000 so their total income is $50,000. construct a lorenz cure and calculate the gini coefficient.

Answer 1

Total Income of Jack and Jane is 10,000 + 40,000 = 50,000

% of Income of Jack = 10,000 / 50,000 = 0.2

% of Income of Jane = 40,000 / 50,000 = 0.8

	% of Population	% of Income	% of Population that is richer	Score
Jack	0.5	0.2	0.5	0.3
Jane	0.5	0.8	0	0.4
				0.7

Gini Coefficient = 1 - Sum of Score = 1 - 0.7 0.3

Score is calculated as = % of Income * (% of Population + 2 * % of Population that is richer)