Q1 What is Gini coefficient? Explain how Gini coefficient is derived from the Lorenz curve?

Expert Solution

In economics, the Gini coefficient, sometimes called Gini index, or Gini ratio, is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality. 0 is perfect equality and 1 is extreme inequality. So if everyone in a country had the same income, the number would be 0, and if one person made all the money and everyone else made none, the number would be 1.

The Lorenz curve renders this disparity graphically, relating percentage of income to percentage of population. A curve is drawn based on cummulative income (or wealth or whatever) distribution charted against the percentage of population holding that income (&c).

The Gini coefficient can be thought of as the ratio of the area between the parity line and the Lorenz curve all divided by the total area under the line of equality.

Rahul Sunny answered 2 years ago

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