The Gini Coefficient is a statistical measure used to evaluate income inequality within a population. It ranges from 0 to 1, where a coefficient of 0 indicates perfect equality (everyone has the same income) and a coefficient of 1 signifies perfect inequality (one person has all the income while others have none). The Gini Coefficient is often represented graphically by the Lorenz curve, which plots the cumulative share of income received by the cumulative share of the population.
Mathematically, the Gini Coefficient can be calculated using the formula:
where is the area between the line of perfect equality and the Lorenz curve, and is the area under the Lorenz curve. A higher Gini Coefficient indicates greater inequality, making it a crucial indicator for economists and policymakers aiming to address economic disparities within a society.
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