Econ Assignment 3

# Econ Assignment 3 - Assignment#3 1 In the graph drawn above...

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Assignment#3 1 In the graph drawn above, the diagonal line is the line of equal distribution of income. The curves, L1 and L2 are Lorenz curves. (i) What is measured on the horizontal axis and what is measured on the vertical axis of the graph? (ii) Why is the diagonal regarded as the line of equal distribution of income? (iii) Which Lorenz curve represents greater economic inequality and why? i. The horizontal axis measures the percentage of income recipients while the vertical axis measures the percentage of income. ii. It is regarded as the line of equal distribution of income because the percentages on the x axis will be the same as the y axis. In other words, each five percent increment increase on households would lead to a five percent increase in their wealth. iii. L2 represents a greater economic inequality because the greater the distortion of the curve and the further away from the line of equal distribution, the more unequal the distribution becomes.

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