Economics • Economic BasicsMedium
Consider the relationship between the Lorenz curve and the Gini coefficient in measuring income distribution. Which of the following statements is accurate?
A. A Gini coefficient of zero represents absolute inequality where one person holds all wealth
B. The Gini coefficient is calculated as the area between the line of absolute equality and the Lorenz curve divided by the total area beneath the line of equality✓ Correct Answer
C. The Lorenz curve plots cumulative percentage of population against cumulative percentage of prices
D. A higher Gini coefficient indicates a more egalitarian distribution of income across households
💡 Solution & Explanation
The Gini coefficient quantifies economic inequality by taking the ratio of the area between the line of perfect equality and the observed Lorenz curve to the entire area under the line of equality. A value of zero signifies absolute equality, whereas a value of one indicates maximum inequality. The Lorenz curve graphs cumulative population shares on the horizontal axis against cumulative income shares on the vertical axis. Income inequality metrics are fundamental indicators evaluated in developmental economics and regional planning analyses.
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