**How to measure the income inequalities in economies? **

The economies around the world neither show complete inequality nor complete equality in terms of income of the people.

**Lorenz curve, **which was developed by **Max O. Lorenz** represents graphically the inequality in the income.

From the Lorenz Curve, we can measure the income inequality by calculating the **Gini Coefficient. **

**How to calculate Gini Coefficient? **

Gini Coefficient allows us to numerically measure the income inequalities.

Gini Coefficient = a/b

**Calculation of a: **area between the line of complete equality & the Lorenz curve

**Calculation of b: **area between the line of complete equality & complete inequality.

Or simply put,

**“Calculate the area between the 45° line & the Lorenz Curve. Then divide the area by 1/2 “**(*as the area covered by complete equality line will always be half of the entire area of the graph which is equal to the area between the complete equality line & the complete inequality line).

**Note: **for a perfectly equal economy, the Lorenz Curve will overlap with the complete equality line (45° line). Wouldn’t it?

**Range of Gini Coefficient: **zero** **to one.

Zero represents perfectly equal economy while one represents perfectly unequal economy.

**Gini Coefficients of some economies around the world :**

India: 0.325

US: 0.408

China: 0.447

Russia: 0.456

With Great Love,

Er. Amit Yadav

http://www.stayfoolish.in

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