Economics • Economic BasicsEasy
What does the Lorenz curve graphically illustrate within an economic system?
A. The trade-off between fiscal deficit and tax revenue
B. The cumulative percentage of total income received by cumulative percentages of the population✓ Correct Answer
C. The trajectory of economic growth over successive five-year plans
D. The relationship between interest rates and money demand
💡 Solution & Explanation
The Lorenz curve plots cumulative shares of income received against cumulative shares of people starting from the poorest. Perfect equality is represented by a straight diagonal line, while greater bowing away indicates higher inequality. From this graphical construct, the Gini coefficient is mathematically derived as the ratio of the area between the line of equality and the Lorenz curve.
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