In general, what is a Lorenz curve? What do Lorenz curves measure?
Graph this country’s Lorenz curve. A Lorenz curve is a graphical look at a country’s distribution of income. The more “bowed” the Lorenz curve is from the diagonal, the less equally income is distributed. • Consider the following income distributions: • Plot the Lorenz curves for 1990 and for 2000. Be sure to label your graph clearly. The critical feature in this problem is that the Lorenz curves cross. This is the ‘modern sector enlargement’ model. • Calculate the Gini coefficient for 1990 and for 2000 (the area between the Lorenz curve and the outside of the box is 0.33 for 1990 and 0.27 for 2000). The Gini coefficient is defined as: A/A+B. For 1990, area A should be 0.5 0.33 = 0.17. This means the Gini for 1990 should be 0.17/0.5 = 0.34. For 2000, area A = 0.5 0.27 = 0.23, and the Gini = 0.23/0.5 = 0.46. • What do you conclude about changes in income inequality from 1990 to 2000? Although the Gini coefficient increases from 1990 to 2000, the Lorenz curves cross. In this case a more
