Question

QUESTION 12 Cumulative percentage of income or wealth Line of quality Wealth 0 20 40 60 80 100 Cumulative percentage of households The figure above shows Lorenz curves for a nation. Based on the figure above, if the poorest 20 percent group of households increased the share of the nation's income they receive, then there is a movement up along the Lorenz curve for income. there is a movement down along the Lorenz curve for income the Lorenz curve for income shifts toward the line of equality the Lorenz curve for income shifts away from the line of equality Both answers there is a movement up along the Lorenz curve for income and the Lorenz curve for income shifts toward the line of equality are correct

Answer 1

A Lorenz curve represents the % of income earned by a given % of the population. A ‘perfect’ income distribution would be one where each % received the same % of income (i.e. 45-degree line known as the line of equality). The gap between the line of equality and the Lorenz curve is more it means there is more inequality in the country and vice-versa.

Option A is correct. The income increase is only among the 20 percent poor households not for the whole population. If there is an increase in income for the whole population (i.e. 100 percent) then there is the shift in the Lorenz curve to the left.