Chapter 30, Problem 30.1LO

To determine

Answer to Problem 30.1LO

Lorenz curve shows the line of actual income distribution. If we compare it with the line of perfect equality we get the idea of the extent of inequality in the distribution of income in a country.

Explanation of Solution

Lorenz curve is the graphic method of studying dispersion. It is used to show the extent of departure dispersion between equal distribution and actual distribution of a variable.

In the diagram, the curved line shows the cumulative percentage of earners (on X axis), ranked from poorest to richest, against the cumulative percentage of total income (on Y axis). This is the Lorenz curve.

The Lorenz Curve is compared to the line of perfect equality to show the extent of income and wealth inequality in a country.

Economics Concept Introduction

Introduction:

Lorenz curve and income inequality.

Lorenz curve: Lorenz curve is the graphic method of studying dispersion. It is used to show the extent of departure dispersion between equal distribution and actual distribution of a variable.