If the Lorenz curve bows further away from the line of perfect equality, what happens to inequality?

• A. Decrease
• B. Cannot be determined
• C. Increase
• D. Remain the same

Answer: (C)

The Lorenz curve shows how income is distributed across the population, with the line of perfect equality representing a perfectly even split. When the curve bows further away from that diagonal, a smaller portion of income goes to a larger portion of the population, meaning the distribution is more unequal. The larger the bow, the bigger the gap between actual shares and equal shares, which corresponds to higher inequality (the area between the curve and the line grows). So, inequality increases.