What is the meaning of Gini coefficient?

What is the meaning of Gini coefficient?

The Gini index, or Gini coefficient, measures income distribution across a population. Developed by the Italian statistician Corrado Gini in 1912, it often serves as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population.

What is Gini coefficient and Lorenz curve?

The Gini coefficient is usually defined mathematically based on the Lorenz curve, which plots the proportion of the total income of the population (y-axis) that is cumulatively earned by the bottom x% of the population. The line at 45 degrees thus represents perfect equality of incomes.

What is meant by a perfectly equal distribution of income?

If everyone earns exactly the same amount of money, then the income distribution is perfectly equal. If no one earns any money except for one person, who earns all of the money, then the income distribution is perfectly unequal.

What is Lorenz curve how it is constructed?

In a Lorenz-curve construct, both the horizontal and the vertical axis go from 0% to 100%. It follows that the diagonal of the box traced out by this graph – a 450 line – can serve as the benchmark for a perfectly equal distribution of the thing (e.g., income or health spending) in question.

What is a good Gini index?

A Gini coefficient of 0.1 means that a country has good equality when it comes to income and wealth distribution. That’s because a coefficient of zero means perfect equality.

How is Gini ratio calculated?

The Gini coefficient can be calculated using the formula: Gini Coefficient = A / (A + B), where A is the area above the Lorenz Curve and B is the area below the Lorenz Curve.

How Gini coefficient is calculated?

The Gini index is calculated as the ratio of the area between the perfect equality line and the Lorenz curve (A) divided by the total area under the perfect equality line (A + B).

What happens when the Lorenz curve is away from the line of equality?

If there is a high degree of inequality, then area A will be a bigger percentage of the total area. A rise in the Gini coefficient shows a rise in inequality – it shows the Lorenz curve is further away from the line of equality.

What are the main merits of Lorenz curve?

The graph can also be used for showing comparisons in other systems of production. The Lorenz curve is normally used by the government for finding out techniques of assessing the inequality of ‘wealth’ distribution in the country. It is a method that helps them to find methods of taking care of problem.

Why Lorenz curve is important?

The Lorenz curve is important because it helps in understanding economic inequality. When the lorenz curve keeps moving away from the baseline it indicates that the level of unequal distribution keeps increasing.

How is Lorenz curve measured?

This curve is called the “line of perfect inequality.” The Gini coefficient is the ratio of the area between the line of perfect equality and the observed Lorenz curve to the area between the line of perfect equality and the line of perfect inequality. The higher the coefficient, the more unequal the distribution is.

How do you read a Lorenz curve?

The closer the Lorenz curve is to the line of equality, the smaller area A is. And the Gini coefficient will be low. If there is a high degree of inequality, then area A will be a bigger percentage of the total area.

What shifts a Lorenz curve?

What shifts the Lorenz curve? Any factor that improves income or wealth distribution, such as high levels of education, will shift the Lorenz curve closer to the line of equality. Any factor that worsens income or wealth distribution shifts the curve further from the line of equality.

Who developed Lorenz curve?

Max O. Lorenz
In economics, the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.