Economics • Economic BasicsMedium
Analyze the implications of the Lorenz Curve and the Gini Coefficient in measuring income distribution. Which of the following graphical configurations represents absolute equality?
A. A Lorenz curve that coincides completely with the horizontal axis
B. A Lorenz curve that forms a right angle along the vertical and horizontal axes
C. A Lorenz curve that coincides perfectly with the 45-degree diagonal line of absolute equality✓ Correct Answer
D. A Lorenz curve that bows outward toward the bottom right corner of the grid
💡 Solution & Explanation
Absolute equality in income distribution is graphically depicted when the cumulative percentage of income received exactly matches the cumulative percentage of population recipients, represented by the 45-degree line. The Gini coefficient in this scenario evaluates to zero. When the Lorenz curve bows outward, inequality increases, culminating in a Gini coefficient of one if a single individual holds all wealth. Welfare economics utilizes these metrics to evaluate the distributional impacts of progressive taxation.
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