Question

Draw the Lorenz curve and explain what the gini coefficient and robinhood index are. Explain differences between the two, and how it is an effective index. Thoroughly explain each index. Also discuss the Lorenz curve and its relation to the gini cofficient index and the robinhood index.

Answer 1

The Lorenz curve is a measure of inequality and shows the degree of spread below the egalitarian line. Thus the further the Lorenz curve sinks below the line the greater is the degree of inequality. The Gini coefficient shows the ratio of the area of inequality (between the 45 degree line and the Lorenz curve) and the total area below the egalitarian line. The Gini coefficient is given as A/(A+B) in the figure below. The Robin Hood index shows the share of total income that needs to be transferred from households above the mean incoThe value of the index approximates the share of total income that needs to be transferred from households above the mean to those below the mean to achieve equality in the distribution of incomes.The Gini coefficient thus shows the extent of inequality, while the Robin Hood transfer shows what is needed to reduce inequality. The Lorenz curve shows a curve of inequality. The further the curve sinks below the line of equality the greater the level of inequality and the greater the Gini coefficient and the Robin Hood index.