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Homework answers / question archive / Suppose that in the figure to the right, the area labeled A is initially 29% of the area denoted B, but then the distribution of income changes in such a way that A increases to 50% of the area denoted B
Suppose that in the figure to the right, the area labeled A is initially 29% of the area denoted B, but then the distribution of income changes in such a way that A increases to 50% of the area denoted B. When A increased, did the degree of income inequality increase or decrease? Explain why your answer makes sense by referring to the implied change in the shape of the Lorenz curve. 75- The value of the Gini coefficient means that there is income inequality after the change in income distribution. This answer makes sense because an increase in A can take place only if the Lorenz curve becomes v bowed, which implies in income inequality. Cumulative Percentage of Money Income 50 25- B 100 25 50 75 Cumulative Percentage of HouseholdsThe (higher / lower) value of the Gini coefficient means that there is (greater / less) income inequality after the change in income distribution. This answer makes sense because an increase in A can take place only if the Lorenz curve becomes (less / more) ?bowed, which implies (an increase / a decrease )in income inequality.
The answer is as follows:
The higher value of the Gini coefficient means that there is greater income inequality after the change in income distribution. This answer makes sense because an increase in A can take place only if the Lorenz curve becomes more ?bowed, which implies an increase in income inequality
Gini coefficient = area A / (area A + B)
Thus., when A increases the Gini coefficient will increase which means the distribution of income is more unequal and the Lorenz curve will be further away from the line of perfect equality (45 degree line)
