What is the Lorenz Curve?

The Lorenz curve graphically represents the inequality that exists in the distribution of the income in a certain limited space, normally being a country.

The graphic representation is done as follows:

  • The X axis is used to define the accumulated population (P) which is expressed in%
  • The Y axis is used to define the accumulated income (Q) which is expressed in%

Best situation for the Lorenz curve

The closer the curve is to the line that joins point 0,0 with point 1,1, the better income will be distributed, considering the line the most egalitarian distribution that can exist in which the citizens of the space or territory that are is considering have the same income.

If the area between the line and the curve is larger, the existing inequality will also be larger. On the other hand, the central line is the one that represents a more equal distribution than the outer line.

Explanation of Lorenz curves

The interpretation of the Lorenz curves can be done in the following way:

  • We choose a point on the curve that we want to interpret
  • We look at the X axis, which indicates the population; and then on the Y axis, which indicates the income

Por ejemplo: Al definir un punto de una curva, podemos indicar que el 80% de la población posee el 20% de la renta; o que el 60% de la población posee el 30% de la renta. Esto dependerá de la curva en la que nos situemos para analizarlo.

The representation of the population in terms of the income level that one has will make its distribution more or less equal with respect to the population. To calculate this curve, you can use the Gini index.

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