ECONOMICS
MARKET FAILURES
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]


In the presence of externalities, an economy can always reach an efficient solution as long as transaction costs are low.


A geometric representation of the share distribution of income among families in a given country at a given time.


An index between 0 and 1 derived from the Lorenz curve. 0 = income is perfectly equally distributed. 1 = income is one controlling all income.


None of the above

Detailed explanation1: The Gini coefficient is used to express the extent of inequality in a single figure. It most often ranges from 0 (or 0%) to 1 (or 100%). Complete equality, in which every individual has the exact same income or wealth, corresponds to a coefficient of 0.
Detailed explanation2: A Lorenz curve plots the cumulative percentages of total income received against the cumulative number of recipients, starting with the poorest individual. Thus a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.
Detailed explanation3: The Gini coefficient is the area between the Lorenz curve of the income distribution and the diagonal line of complete equality, expressed as a proportion of the triangular area between the curves of complete equality and inequality.
Detailed explanation4: The Gini coefficient is based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive, and it ranges between 0 in the case of perfect equality and 1 in the case of perfect inequality.
Detailed explanation5: The Gini coefficient measures the extent to which the distribution of income within a country deviates from a perfectly equal distribution. A coefficient of 0 expresses perfect equality where everyone has the same income, while a coefficient of 100 expresses full inequality where only one person has all the income.