Question

What is the merits of Lorenz curves

Answer 1

Hello !

Lorenz curve describes the income inequalities in turn the GINI coefficient. It is usually represented graphically where the distribution of wealth is plotted in the graph where the population is represented on the X-axis and the income distribution is plotted on the Y-axis.

• This is more precise i.e., the plot is made between (0,0) and (1,1) while the former value represents perfect equality and the later represents perfect inequality.

• The curve cannot rise beyond perfect equality and cannot lower beyond the perfect inequality.

• A 45 degree line gives the line of equality. The Gini coefficient represents the ratio of area under the line of perfect equality and Lorenz curve to the area under the line of perfect equality and the line of perfect inequality.

• It represents the dispersion of population and their income levels unlike the GDP which doesn’t represent the diverse population.

• This can be used to measure and interpret the value of gini coefficient of a place of population, a state, a country or even a group of countries.

• It can be represented as a function of time, so that the increase and decrease of the value over time could be found and interpreted.

• It doesn’t represent the individual names and their incomes hence anonymity is maintained.

• It is independent of the scale of population or their levels of incomes meaning this can be used to measure large population.

• Most of all, this plays a very important role in determining the taxation and their slabs in a country depending upon the income of the individuals.

Hope It Helps u :)