Which of the following indicators reflects inequality in the distribution of income among individuals in a population?

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Question

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RRB NTPC Graduate Level CBT-I Official Paper (Held On: 06 Jun, 2025 Shift 3)

Answer 1

The correct answer is Lorenz Curve.

Key Points

The Lorenz Curve is a graphical representation that illustrates the distribution of income or wealth among individuals or households in a population.
It is used to measure income inequality, where the degree of deviation from the line of perfect equality (the diagonal line) indicates the level of inequality.
The closer the Lorenz Curve is to the diagonal line, the more equal the income distribution; the farther it is, the greater the inequality.
The curve is often used in conjunction with the Gini Coefficient, which quantifies the level of income inequality as a single numerical value.
Developed by Max Lorenz in 1905, this tool remains a cornerstone in economic studies related to inequality and social welfare.

Additional Information

Gini Coefficient:
- The Gini Coefficient is a numerical measure derived from the Lorenz Curve, ranging from 0 to 1.
- A Gini Coefficient of 0 indicates perfect equality, while a value of 1 indicates perfect inequality.
- It is widely used by economists and policymakers to compare income inequality across regions or countries.
Dependency Ratio:
- This is a demographic metric that indicates the ratio of dependents (young and elderly) to the working-age population.
- While important for understanding economic pressures, it does not measure income inequality.
Consumer Price Index (CPI):
- CPI measures changes in the price level of a basket of consumer goods and services purchased by households over time.
- It is a key indicator of inflation, not income distribution.
Labour Force Participation Rate (LFPR):
- LFPR measures the proportion of the working-age population that is either employed or actively seeking employment.
- It provides insights into labor market dynamics but does not reflect income inequality.
Historical Context of Income Inequality Studies:
- The study of income inequality gained prominence during the 20th century as economists sought to understand its implications on economic growth and social stability.
- Tools like the Lorenz Curve and Gini Coefficient remain fundamental to these analyses.