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    Lorenz Curve

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    Kate Echaluse
    The Lorenz curve shows the proportion of national income earned by percentages of the population, from poorest to richest. It is used to measure income inequality through the Gini coefficient. The Gini coefficient is a number between 0 and 1 that represents the area between the Lorenz curve and perfect equality line, with higher numbers indicating more inequality. It is the most commonly used measure of inequality in a population. Understanding the patterns in a country's Lorenz curve and Gini coefficient over time can provide insights into its economic development and the distribution of income among rich and poor.

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    Lorenz Curve

    Uploaded by

    Kate Echaluse
    281 views2 pages
    The Lorenz curve shows the proportion of national income earned by percentages of the population, from poorest to richest. It is used to measure income inequality through the Gini coefficient. The Gini coefficient is a number between 0 and 1 that represents the area between the Lorenz curve and perfect equality line, with higher numbers indicating more inequality. It is the most commonly used measure of inequality in a population. Understanding the patterns in a country's Lorenz curve and Gini coefficient over time can provide insights into its economic development and the distribution of income among rich and poor.

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    Lorenz Curve

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    The Lorenz curve shows the proportion of national income earned by percentages of the population, from poorest to richest. It is used to measure income inequality through the Gini coefficient. The Gini coefficient is a number between 0 and 1 that represents the area between the Lorenz curve and perfect equality line, with higher numbers indicating more inequality. It is the most commonly used measure of inequality in a population. Understanding the patterns in a country's Lorenz curve and Gini coefficient over time can provide insights into its economic development and the distribution of income among rich and poor.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    281 views2 pages

    Lorenz Curve

    Uploaded by

    Kate Echaluse
    The Lorenz curve shows the proportion of national income earned by percentages of the population, from poorest to richest. It is used to measure income inequality through the Gini coefficient. The Gini coefficient is a number between 0 and 1 that represents the area between the Lorenz curve and perfect equality line, with higher numbers indicating more inequality. It is the most commonly used measure of inequality in a population. Understanding the patterns in a country's Lorenz curve and Gini coefficient over time can provide insights into its economic development and the distribution of income among rich and poor.

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    Merto, Karen May B.

    BBE
    The Lorenz Curve and Gini Coefficient
    By: Preshita

    The Lorenz Curve

    The curve shows the proportion of national income earned by any given
    percentage of the population (measured from the poorest upwards)
    The diagonal 45 line denotes the line of complete equality
    The further away from the diagonal line, the more unequal the distribution of
    income in a country

    Gini Coefficient

    Measures degree of income inequality in a population


    It is the ratio of the area between the Lorenz Curve and the over the area of half
    the square in which the curve lies

    Formula: A/(A+B) as seen in the above diagram of the Lorenz Curve

    Varies from 0 (perfect equality) and 1 (perfect inequality)


    Gini-coefficient of inequality: This is the most commonly used measure of inequality.
    The coefficient varies between 0, which reflects complete equality and 1, which
    indicates complete inequality (one person has all the income or consumption, all others
    have none). Graphically, the Gini coefficient can be easily represented by the area
    between the Lorenz curve and the line of equality.
    On the figure to the right, the Lorenz curve maps the cumulative income share on the
    vertical axis against the distribution of the population on the horizontal axis. In this
    example, 40 percent of the population obtains around 20 percent of total income. If each
    individual had the same income, or total equality, the income distribution curve would be
    the straight line in the graph the line of total equality. The Gini coefficient is calculated
    as the area A divided by the sum of areas A and B. If income is distributed completely
    equally, then the Lorenz curve and the line of total equality are merged and the Gini
    coefficient is zero. If one individual receives all the income, the Lorenz curve would pass

    through the points (0,0), (100,0) and (100,100), and the surfaces A and B would be
    similar, leading to a value of one for the Gini-coefficient.
    It is sometimes argued that one of the disadvantages of the Gini coefficient is that it is
    not additive across groups, i.e. the total Gini of a society is not equal to the sum of the
    Ginis for its sub-groups.

    Tying the Lorenz Curve and Gini Coefficient with Development


    The Gini Coefficient, which is derived from the Lorenz Curve, can be used as an
    indicator of economic development in a country. An increase in the Gini Coefficient
    signifies unequal distribution of income even though national income may be rising, it
    may not necessarily trickle down to the country's population (Trickle-down effect). In
    order to narrow the gap between the rich and the poor, the patterns of a countrys
    Lorenz Curve and Gini coefficient must be understood well.
    Gini Coefficients can be used for comparisons. Economists can compare the Gini
    Coefficient of one country with the Gini Coefficient of another country in a particular
    year. They can also compare a countrys Gini Coefficient over years which may illustrate
    a trend of income distribution.

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