How To Draw Lorenz Curve Economics

Definition: The Lorenz curve is a fashion of showing the distribution of income (or wealth) inside an economy. It was adult 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 xx% of the total income. The poorest 60% of the population would become threescore% of the income.

Diagram of Lorenz curve

In this Lorenz bend, the poorest 20% of households have v% of the nation's total income.

The poorest 90% of the population holds 55% of the total income. That means the richest x% of income earners gain 45% of total income.

Shift in the Lorenz Curve

In this instance, in that location has been a reduction in inequality – the Lorenz bend has moved closer to the line of equality.

The poorest 20% of the population now gain 9% of total income
The richest x% of the population used to gain 45% of total income merely now only get 25% of total income.

The Lorenz Curve and the Gini Coefficient

The Lorenz Curve can exist used to summate the Gini coefficient – some other measure of inequality.

The Gini coefficient is area A/A+B

The closer the Lorenz curve is to the line of equality, the smaller area A is. And the Gini coefficient will be low.

If there is a high degree of inequality, then area A volition exist a bigger pct of the full area.

A rise in the Gini coefficient shows a rise in inequality – it shows the Lorenz curve is further away from the line of equality.

Lorenz Curve and wealth

Wealth Inequality and Lorenz bend

The Lorenz curve shows the cumulative wealth of each wealth decile. Information technology shows that the lowest 38% of individuals have zero property wealth. The tiptop ten% own nearly 50% of belongings wealth.

With fiscal wealth, inequality is even greater with 60% of the population in debt and negative wealth. The top x% take 80% of the nations financial wealth.

Source:

Wealth in Cracking Great britain ONS, published July 2012

Gini Coefficient in the UK

This shows that since 1979, the United kingdom has seen a ascent in inequality – especially during the 1980s.

The original Lorenz Curve

American Statistical Association June 1905 JSTOR

Interestingly, the original Lorenz curve had percents of total income and percents of the population on different centrality.

Related

Measures of poverty
Wealth inequality in the UK
Pros and cons of inequality

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