The Relationship Between Lorenz Curve Geometry and Inequality Measurement
In a standard income distribution diagram, explain the conceptual relationship between the area enclosed by the line of perfect equality and the Lorenz curve, and the numerical value of the Gini coefficient. Specifically, why does a larger area between these two lines indicate a higher degree of income inequality?
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Imagine a standard diagram used to show income distribution, with cumulative population percentage on the horizontal axis and cumulative income percentage on the vertical axis. The diagram includes a straight diagonal line representing perfect income equality. Two countries, Country A and Country B, are plotted on this diagram. The curve representing Country A is positioned significantly farther away from the line of perfect equality than the curve for Country B. Based on this visual information, what is the most logical conclusion about the income inequality in these two countries?
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The Relationship Between Lorenz Curve Geometry and Inequality Measurement