Lorenz Curve

The Lorenz Curve is a graphical tool used to illustrate how income or wealth is distributed within a population. It displays the cumulative proportion of households or individuals, arranged from the lowest to the highest earners, alongside the cumulative share of total income or wealth they receive. A diagonal 45-degree line represents a perfectly equal distribution, while the Lorenz Curve depicts what actually occurs. The more the curve sags away from this diagonal, the more unequal the distribution becomes.

Illustration:

For example, if the bottom 40% of the population collectively receives only 10% of total income, the Lorenz Curve would lie well below the line of perfect equality, indicating a significant degree of income inequality.