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Chapter 18: Problem 3

What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2018 , would income inequality in the country have increased or decreased?

Short Answer

Expert verified
The Lorenz Curve is a graph showing the distribution of wealth or income, while Gini Coefficient measures the inequality of a distribution. Between 1960 and 2018 in this country, the income inequality decreased as the Gini coefficient decreased from 0.48 to 0.44.

Step by step solution

01

Explanation of Lorenz Curve

The Lorenz Curve is a graphical representation of the distribution of income or of wealth within a population. It is named after the American economist Max Lorenz. To plot this, we draw a line diagonally across a graph (The Line of Equality). The horizontal axis represents the cumulative proportion of households (beginning with the poorest), and the vertical axis represents the cumulative proportion of income (or wealth). The Lorenz curve lies beneath this line, demonstrating that wealth and income are not distributed equally.
02

Explanation of Gini Coefficient

The Gini Coefficient is a single numerical value aim at measuring the degree of inequality within a distribution. It is derived from the Lorenz curve. This coefficient ranges from 0 to 1, where 0 represents perfect equality, while a coefficient of 1 signifies perfect inequality. The Gini coefficient can also be calculated based on the area between the Line of Equality and the Lorenz curve.
03

Comparing the Gini Coefficients

Let's compare the Gini coefficients from 1960 and 2018, which are 0.48 and 0.44 respectively. Since the coefficient for 2018 is smaller than the one for 1960, we can say that income inequality decreased between 1960 and 2018.

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Most popular questions from this chapter

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