On a Lorenz curve, what does the line of perfect equality represent?

• A. Every person has an equal share of income
• B. A completely unequal distribution
• C. The actual observed distribution
• D. The Gini coefficient value

Answer: (A)

The line of perfect equality on a Lorenz curve is the benchmark for equal income across everyone. It’s the 45-degree line where the share of income exactly matches the share of people at every point—so if 20% of the population earned 20% of the income, 40% earned 40%, and so on. When income is distributed this evenly, the Lorenz curve would lie right on that line.

In reality the Lorenz curve usually bows below it, showing that some people earn more than others. The gap between the line of equality and the actual curve represents inequality, and the Gini coefficient measures that gap.

So the line of perfect equality corresponds to everyone having an equal share of income. It’s not the actual distribution, and it’s not a measure itself, but the benchmark used to assess inequality.