What does the Lorenz curve graphically represent?

The Lorenz curve graphically represents income distribution within an economy. It is a graphical representation that illustrates the proportion of total income earned by different segments of the population. The curve is created by plotting the cumulative percentage of total income received by the cumulative percentage of the population, starting from the lowest income earners to the highest.

A perfectly equal income distribution would result in a straight diagonal line at 45 degrees, where each percentage of the population earns an equal percentage of the total income. However, in the real world, the Lorenz curve typically bows below this line, indicating that a small percentage of the population holds a larger proportion of the income, thus demonstrating income inequality.

In contrast, the other options focus on different aspects of economic analysis. Wealth distribution refers to the total value of assets owned by individuals, which is a different concept than income. Expenditure patterns of households relate to how households allocate their income among various goods and services, while employment trends focus on job availability and unemployment rates in a region rather than income distribution. Consequently, the Lorenz curve specifically captures the nuances of income inequality rather than these other economic factors.