|Book Edition||7th Edition|
What does the Lorenz curve illustrate?
The solution: Income inequality or wealth inequality
A Lorenz curve is defined as a graphical representation of income inequality or wealth inequality that was developed by American economist Max Lorenz in 1905. The graph plots percentiles of the population on the horizontal axis according to income or wealth. The Lorenz curve is sometimes accompanied by a straight diagonal line with a slope of 1, which portrays or depicts a perfect equality in income or wealth distribution; the Lorenz curve lies beneath it, showing the observed or estimated distribution. The area amid the straight line and the curved line, expressed as a ratio of the area under the straight line, is the Gini coefficient, which is a scalar measurement of inequality.
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