Changes

* market failure and imbalances in information

* market failure and imbalances in information

The Lorenz curve (also known as the Lorenz diagram) is a graph displaying a comparison of the actual distribution of income in a society against a hypothetical '''''equal''''' distribution of income.  This could be done by plotting the percent of overall income on the y-axis and the percent of families on the x-axis.  A hypothetical (imaginary) '''''equal''''' distribution of income would be a straight line at 45 degrees (the line y=x).  But the actual distribution of income would be closer to a step function: going from the poorest 0% to 20% of families would have almost no increase in cumulative income on the y-axis, and then from 20% to 80% would show a big increase, and then from 80% to 100% would show a leveling again in cumulative income.

The Lorenz curve (also known as the Lorenz diagram) is a graph displaying a comparison of the actual distribution of income in a society against a hypothetical '''''equal''''' distribution of income.  This could be done by plotting the percent of overall income on the y-axis and the percent of families on the x-axis.  A hypothetical (imaginary) '''''equal''''' distribution of income would be a straight line at 45 degrees (the line y=x).  But the actual distribution of income would not rise as quickly as that straight line. Going from the poorest 0% to perhaps 20% (on the x-axis) of families would have almost no increase in cumulative income (on the y-axis), and beyond that the slope of the curve for actual income would gradually increase until the richest earners near the top 100% of families were included.

On the CLEP exam, a question about the Lorenz curve is probably going to to be asked in a favorable way, suggesting that it is a proper role of government to try to equalize the income for everyone.

On the CLEP exam, a question about the Lorenz curve is probably going to to be asked in a favorable way, suggesting that it is a proper role of government to try to equalize the income for everyone.