|Consider the following statements:|
|1. The Lorenz curve is a graphical representation of relative poverty.|
|2. The Lorenz curve is used to calculate the Gini coefficient which is numerical indictor of inequality. Which of these statements is/are correct?|
A) Only 1
B) Only 2
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: C
Solution :[c] A graphical representation of wealth distribution developed by American economist Max Lorenz in 1905. On the graph, a straight diagonal line represents perfect equality of wealth distribution; the Lorenz curve lies beneath it, showing the reality of wealth distribution. The difference between the straight line and the curved line is the amount of inequality of wealth distribution, a figure described by the Gini coefficient. The Lorenz curve can be used to show what percentage of a nation's residents possess what percentage of that nation's wealth. For example, it might show that the country's poorest 10% possess 2% of the country's wealth.
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