Lorenz Curve.docx - Lorenz Curve Definition The Lorenz curve is a way of showing the distribution of income(or wealth within an economy It was developed

Lorenz Curve.docx - Lorenz Curve Definition The Lorenz...

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Lorenz Curve Definition: The Lorenz curve is a way of showing the distribution of income (or wealth) within an economy. It was developed by Max O. Lorenz in 1905 for representing wealth distribution. The Lorenz curve shows the cumulative share of income from different sections of the population. If there was perfect equality – if everyone had the same salary – the poorest 20% of the population would gain 20% of the total income. The poorest 60% of the population would get 60% of the income. Diagram of Lorenz curve In this Lorenz curve, the poorest 20% of households have 5% of the nation’s total income.
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The poorest 90% of the population holds 55% of the total income. That means the richest 10% of income earners gain 45% of total income. Shift in the Lorenz Curve In this example, there has been a reduction in inequality – the Lorenz curve has moved closer to the line of equality. The poorest 20% of the population now gain 9% of total income The richest 10% of the population used to gain 45% of total income but now only get 25% of total income.
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