Which curve is utilized to show economic efficiency in resource allocation?

The Lorenz curve is utilized to demonstrate economic efficiency in resource allocation by illustrating income distribution within a population. This curve plots the cumulative percentage of total income earned against the cumulative percentage of the population, enabling a visual representation of economic inequality. The closer the curve is to the line of equality (the 45-degree line), the more evenly distributed the income is, which suggests that resources are being allocated more efficiently among individuals.

When analyzing economic efficiency, a perfectly efficient allocation would reflect a scenario where resources are distributed in a way that maximizes total utility among all individuals within the economy. The Lorenz curve, therefore, serves as a critical tool for understanding disparities in wealth and income distribution, which can inform policies aimed at improving economic efficiency.

In contrast, the Laffer curve relates to tax revenue and rate, showcasing the relationship between tax rates and tax revenue, while the Gini coefficient quantifies income inequality based on the Lorenz curve. Absolute advantage refers to the ability of an entity to produce more of a good or service with the same resources than another entity, but it does not specifically address resource allocation efficiency as seen through income distribution.