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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