Multiple Choice
Which of the following is true regarding the Gini coefficient?
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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