3. Interpret the point (0.9,0.7) in two ways, in terms of richest and poorest.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Scientists studying the economics of a country, community, or group of people are often interested
in the distribution of wealth, where wealth is understood to mean the income or the personal assets
of individual households. A powerful tool for illustrating how wealth is distributed across a society
is the Lorenz curve (invented by the American economist Max Otto Lorenz in 1905).
A typical Lorenz curve is given by y = L(x), where 0 < x < 1 and 0 < y < 1. The variable
I represents the fraction of all households in the society and y = L(x) represents the fraction of
the total wealth that is owned by the fraction x of the society. For example, for the Lorenz curve
shown in Figure 1, we see that L(0.5) = 0.2, which means that 0.5 (50%) of the society owns 0.2
(20%) of the wealth.
bottom
botom
y A
1-
Line of perfect
equality
0.8 of households
control 0.6 of
the wealth.
Lorenz curve
0.5 of households
control 0.2 of
the wealth.
0.2
B
0.5
0.8 a1 1
Fraction of Households
Figure I
Fraction of Total Wealth
Transcribed Image Text:Scientists studying the economics of a country, community, or group of people are often interested in the distribution of wealth, where wealth is understood to mean the income or the personal assets of individual households. A powerful tool for illustrating how wealth is distributed across a society is the Lorenz curve (invented by the American economist Max Otto Lorenz in 1905). A typical Lorenz curve is given by y = L(x), where 0 < x < 1 and 0 < y < 1. The variable I represents the fraction of all households in the society and y = L(x) represents the fraction of the total wealth that is owned by the fraction x of the society. For example, for the Lorenz curve shown in Figure 1, we see that L(0.5) = 0.2, which means that 0.5 (50%) of the society owns 0.2 (20%) of the wealth. bottom botom y A 1- Line of perfect equality 0.8 of households control 0.6 of the wealth. Lorenz curve 0.5 of households control 0.2 of the wealth. 0.2 B 0.5 0.8 a1 1 Fraction of Households Figure I Fraction of Total Wealth
3. Interpret the point (0.9,0.7) in two ways, in terms of richest and poorest.
Transcribed Image Text:3. Interpret the point (0.9,0.7) in two ways, in terms of richest and poorest.
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