A statistical measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality) is called what?

• A. Lorenz curve
• B. Line of perfect equality
• C. Gini coefficient
• D. Income distribution

Answer: (C)

The concept tested is how to summarize income inequality with a single number. The Gini coefficient is that measure, scaled from 0 for perfect equality to 1 for maximum inequality. It’s derived from the Lorenz curve, which graphs the share of total income against the share of people. The Gini coefficient equals the area between the line of equality and the Lorenz curve divided by the total area under the line of equality. A value near 0 means income is spread very evenly, while a value near 1 means a large share of income is held by a few. The Lorenz curve is the graph itself, the line of perfect equality is just the reference line, and income distribution is the broader concept of how income is spread.