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: (1) country A has greater income inequality than country B. ✓ Correct Answer (2) country B has greater income inequality than country A. (3) both countries have identical income distribution. (4) country A has a higher GDP per capita than country B. (5) country B has more absolute poverty than country A. 💡 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.
