Inequality

Lorenz Curve

Graphically represents income or wealth distribution within a population.

X-axis of the Lorenz Curve

Cumulative percentage of the population (from poorest to richest).

Y-axis of the Lorenz Curve

Cumulative percentage of total income or wealth.

Line of Equality

A 45° line indicating perfect equality in income distribution.

Gini Coefficient

A numerical measure of income or wealth inequality derived from the Lorenz curve.

Gini Coefficient Formula

Gini = A / (A + B), where A is the area between the Lorenz curve and the Line of Equality, and B is the area under the Lorenz curve.

Perfect Equality (Gini Coefficient)

A Gini coefficient of 0, meaning everyone has the same income.

Perfect Inequality (Gini Coefficient)

A Gini coefficient of 1, meaning one person has all the income.

Higher Gini Coefficient

Indicates greater inequality in income distribution.

Purpose of Lorenz Curve and Gini Coefficient

Both measure and visualize economic inequality.

Complementary Nature of Lorenz Curve and Gini Coefficient

The Lorenz curve provides a visual representation while the Gini coefficient quantifies inequality.

Policy Implications of Understanding Lorenz Curve and Gini Coefficient

Helps in assessing the effectiveness of policies aimed at reducing inequality.