<p>Gini Coefficient is the ratio of the area that lies between the 45 degree line (line of equality) and the Lorenz curve, and the area below the line of equality. Given the data in the problem Lorenz curve connects points $(0, 0)$, $(50, 20)$ and $(100, 100)$ in the graph. To find the Gini coefficient, we find the area between the line of equality and the Lorenz curve and divide it by the area of the triangular region that lies below the line of equality. </p>

<p>Gini coefficient $\displaystyle = 1 - \frac{\color{blue}{0.5\times 50 \times 20} + \color{red}{(100 - 50) \times 20} + \color{gray}{0.5\times (100-50) \times (100-20)}}{0.5\times 100 \times 100} = 0.3$</p>

<p>Here is the graph:</p>

<p><a href="https://i.sstatic.net/K3cX5.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/K3cX5.png" alt="enter image description here"></a></p>

CC BY-SA 3.0
2017-01-23T11:16:50.150Z
2017-01-23T11:44:41.953Z
2017-01-23T11:44:41.953Z
Amit
<p>The Gini coefficient is defined as the normalized Gini index.
If $G$ is the Gini index, $0 \leq G \leq \frac{n-1}{n}$.
The Gini coefficient $G^* = \frac{n}{n-1} G$ is a normalization such that $0\leq G^* \leq 1$. That way you can easier compare different populations with different $n$.
In your example it should be that $G= 3/10$ and then $G^*=6/10=3/5$.</p>

CC BY-SA 3.0
2017-01-08T22:39:46.377Z
How do you normalise it?  I though the Gini was A/(A+B)
Dtomas
CC BY-SA 3.0
2017-01-08T22:56:31.653Z
Just multiply with $n/(n-1)$ so that extreme inequality has a coefficient of 1.
Bayesian
CC BY-SA 3.0
2017-01-09T10:47:56.143Z
See: https://en.wikipedia.org/wiki/Gini_coefficient You can define the Gini coefficient as the relative mean absolute difference divided by 2. Calculate your example with, say, $x_1=8, x_2=2$. You can see that extreme inequality $x_1=10,x_2=0$ would give you $G=0.5=(n-1)/n$ which can be normalized as above.
Bayesian
CC BY-SA 3.0
2017-01-08T22:03:30.887Z
2017-01-08T22:03:30.887Z
Bayesian
<p>In a 2-person economy, the owner of a firm pays 20% of the total output to the worker.</p>

<p>What is the Gini coefficient in this economy?</p>

<p>The answer is supposed to be 3/5 but I end up getting 3/10 instead.</p>

<inequality>
Determining the Gini Coefficient in a 2 person economy
Dtomas
# Determining the Gini Coefficient in a 2 person economy

(Asked by: username_0 on 2017-01-08)

In a 2-person economy, the owner of a firm pays 20% of the total output to the worker.

What is the Gini coefficient in this economy?

The answer is supposed to be 3/5 but I end up getting 3/10 instead.

**Tags:** inequality


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## 2 answers

### Answer by username_1 on 2017-01-23. Score: 2

Gini Coefficient is the ratio of the area that lies between the 45 degree line (line of equality) and the Lorenz curve, and the area below the line of equality. Given the data in the problem Lorenz curve connects points $(0, 0)$, $(50, 20)$ and $(100, 100)$ in the graph. To find the Gini coefficient, we find the area between the line of equality and the Lorenz curve and divide it by the area of the triangular region that lies below the line of equality.

Gini coefficient $\displaystyle = 1 - \frac{\color{blue}{0.5\times 50 \times 20} + \color{red}{(100 - 50) \times 20} + \color{gray}{0.5\times (100-50) \times (100-20)}}{0.5\times 100 \times 100} = 0.3$

Here is the graph:

[![enter image description here](https://i.sstatic.net/K3cX5.png)](https://i.sstatic.net/K3cX5.png)


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### Answer by username_2 on 2017-01-08. Score: 1

The Gini coefficient is defined as the normalized Gini index.
If $G$ is the Gini index, $0 \leq G \leq \frac{n-1}{n}$.
The Gini coefficient $G^\* = \frac{n}{n-1} G$ is a normalization such that $0\leq G^\* \leq 1$. That way you can easier compare different populations with different $n$.
In your example it should be that $G= 3/10$ and then $G^\*=6/10=3/5$.

> **Comments:**
> **username_0**: How do you normalise it?  I though the Gini was A/(A+B)  
> **username_2**: Just multiply with $n/(n-1)$ so that extreme inequality has a coefficient of 1.  
> **username_2**: See: https://en.wikipedia.org/wiki/Gini_coefficient You can define the Gini coefficient as the relative mean absolute difference divided by 2. Calculate your example with, say, $x_1=8, x_2=2$. You can see that extreme inequality $x_1=10,x_2=0$ would give you $G=0.5=(n-1)/n$ which can be normalized as above.  

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