INCOME INEQUALITY

   

In economics, the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.

The curve is a graph showing the proportion of overall income or wealth assumed by the bottom x% of the people although this is not rigorously true for a finite population. It is often used to represent income distribution, where it shows for the bottom x% of households, what percentage (y%) of the total income they have. The percentage of households is plotted on the x-axis, the percentage of income on the y-axis. It can also be used to show distribution of assets. In such use, many economists consider it to be a measure of social inequality.

The Lorenz curve is a measure of inequality.

The Lorenz curve shows cumulative income against cumulative income groups.
The government introduced policies to reduce inequality. Higher income tax on rich, benefits for the poor, the Lorenz curve would shift to the left and get closer to the line of equality.
If there was an increase in wages for the highly skilled but not low skilled workers the Lorenz curve would shift to the right, showing an increase in inequality.             

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