Chapter 19, Problem 1E

To determine

To state:

the concept of Lorenz curve and the shape of Lorenz curve when the income is equally distributed and would the curve bow upwards above the income equality line.

Explanation of Solution

Lorenz curve:

is defined as a curve that measures the degree of inequality of income distribution of an economy.

When the income is equally distributed, the Lorenz curve will be a straight 45 degree line.

In case of a normal economy, the Lorenz curve will lie beneath it, presenting the reality of wealth distribution.

As per the definition, this curve cannot be bowed upward as the bottom 10% of incomes can't earn more than the top 90% of incomes.

Economics Concept Introduction

Lorenz curve:

is defined as a curve that measures the degree of inequality of income distribution of an economy.

In other words, it is defined as a graph on which the cumulative percentage of total national income is plotted against the corresponding population (cumulative percentage of the corresponding population)

The degrees to which this curve sags below the straight line represents the degree of inequality in the distribution of income.