Question

1. give an intuitive explanation of how the Gini coefficient and Lorenz curve is measured and what we can learn about income inequality from it. (For example: What do the larger and smaller values of this measure mean? Which parts of the income distribution do this measure use?)

Answer 1

Lorenz curve represent the depth of income inequality in the country. As you can see in the pic below. The diagonal line is line of perfect equality which show there is perfect equal income distribution in the country. And the curvy line is lonenz curve, greater the depth of this curve greater will be income inequality. as in the figure we can see at point C on line of equality 50% of the population have 50% of the wealth of the country which show perfect income equality or perfect income distribution in the country.

Whereas at point D which lies on Lorenz curve we can se 75% population have on 50% wealth of the country. Which show inequality in the income or inequality in the wealth distribution in the country.

Gini coefficient ​​​​​, from the Lorenz curve diagram it can be measured by dividing the shaded region A by the area of region A plus region B, that is A/(A+B).

It's value have range from 0 to 1.

0 - perfect income equality

1 - perfect income inequality