An economist observes that following the implementation of a new wealth redistribution policy in a country, the area between the line of perfect equality and the Lorenz curve has become smaller. Based on this observation, the economist concludes that the country's Gini coefficient has risen, indicating an increase in income inequality.
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Consider a standard diagram used to represent a country's income distribution, where a curved line shows the cumulative share of income held by a cumulative share of the population. A straight diagonal line on this diagram represents a scenario of perfect income equality. If a country's curved line shifts to be positioned further away from the straight line of perfect equality, what is the resulting effect on the Gini coefficient and the overall level of income inequality?
Analysis of Income Distribution in Two Countries
An economist observes that following the implementation of a new wealth redistribution policy in a country, the area between the line of perfect equality and the Lorenz curve has become smaller. Based on this observation, the economist concludes that the country's Gini coefficient has risen, indicating an increase in income inequality.
Interpreting Income Distribution Diagrams