Explanation: Past Paper Challenge
📉 Understanding the Lorenz Curve
MCQ CHALLENGE
If the Lorenz curve of country A lies entirely below that of country B, it implies:
💡 Step-by-Step Explanation
1
Understanding the Lorenz Curve
The Lorenz Curve graphically represents the distribution of income among a population. The closer a curve is to the "Line of Perfect Equality" (the 45-degree diagonal line), the more equal the income distribution is.
2
Interpreting the Position
When a Lorenz curve lies below another, it indicates that a smaller percentage of the population earns a smaller percentage of the total income compared to the other country. Therefore, the further a curve bows away from the diagonal line, the higher the income inequality.
📍 Since Country A's curve is entirely below Country B's, Country A has a greater level of income inequality.
3
Why the other options are incorrect
- (2) Incorrect: Country B's curve being above Country A's means it sits closer to the diagonal line, representing less inequality.
- (3) Incorrect: If the distributions were identical, the two curves would overlap perfectly.
- (4) and (5) Incorrect: The Lorenz curve measures relative income distribution (equality), not absolute metrics like GDP per capita or specific poverty line metrics.