Which concept is a graphical representation of income distribution within an economy?

• A. Lorenz Curve
• B. Gini Coefficient
• C. Externalities
• D. Private Benefit

Answer: (A)

The main thing this question tests is a graphical way to show how income is spread across a population. The Lorenz Curve does exactly that: it plots the cumulative share of total income on the vertical axis against the cumulative share of households (ranked from poorest to richest) on the horizontal axis. If everyone earned the same, the curve would run along a 45-degree line of equality. The more the curve bends away from that line, the greater the inequality. The Gini coefficient, by contrast, is a single number that summarizes this inequality and is derived from the Lorenz Curve, not a graph itself. Externalities are spillover effects in markets, and private benefit refers to the benefit received by individuals in a market transaction.