Theil Index, Gini Index and Palma ratio measures
Last updated Jun 23, 2026
Correct Answer:
Option B —
Income Inequality
Explanation of the Indices:Gini Index: This is the most widely used measure of inequality. It ranges from 0 to 1 (or 0% to 100%). A value of 0 represents perfect equality (everyone has the same income), while 1 represents perfect inequality (one person has all the income).
Theil Index: This is a statistic used to measure economic inequality and other forms of racial or social segregation. Unlike the Gini Index, the Theil Index is particularly good at "decomposing" inequality—showing how much inequality is due to disparities within a group versus between different groups.
Palma Ratio: This ratio focuses on the extremes of the income distribution. It is calculated by taking the share of gross national income (GNI) of the top 10% and dividing it by the share of the bottom 40%. It is based on the observation that the "middle class" share of income usually stays relatively stable, so inequality is mostly driven by the gap between the very rich and the very poor.
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