Multiple Choice
The country of Newland has a Lorenz curve where the area between the line of equal distribution and the Lorenz curve is 0.22 and the area below the Lorenz curve is .46. What is the Gini coefficient for Newland?
16. Income Inequality and Poverty
Lorenz Curve and Gini Coefficient
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Which of the following would represent the Lorenz curve of an nation where everyone earned equal income?
A
The Lorenz curve would have a negative slope
B
The Lorenz curve would be U-shaped.
C
The Lorenz curve would be a straight line with a slope of 1.
D
The Lorenz curve would not exist.
Verified step by step guidance1
Understand the concept of the Lorenz curve: It is a graphical representation of income or wealth distribution within a nation, showing the proportion of total income earned by cumulative percentages of the population.
Recognize that a perfectly equal income distribution means that each percentage of the population earns the same percentage of total income.
Visualize the Lorenz curve for perfect equality: In this scenario, the curve would be a straight line from the origin (0,0) to the point (1,1) on a graph where the x-axis represents the cumulative percentage of the population and the y-axis represents the cumulative percentage of income.
Identify the slope of the line: For perfect equality, the line has a slope of 1, indicating that each additional percentage of the population accounts for an equal percentage of total income.
Conclude that the Lorenz curve for a nation where everyone earns equal income is a straight line with a slope of 1, representing perfect equality.
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