Understanding the Lorenz Curve: Analyzing Income Inequality

Last Name 1 Student’s Name Professor’s Name Course Number Date THE LORENZ CURVE A Lorenz curve is a graphical depiction of income or wealth disparity. The chart invented by American economist, Lorenz Marx in the year 1905. The curve depicts the population percentile to display the distribution of income. It is a common visual depiction of the Gini index because it plans the population percentile to demonstrate income (Galbraith and Lloyd M Bentsen Jr Chair in Government/Business Relations James K Galbraith, 64). The Lorenz curve is critical for gauging the extent of income disparity in a society since it is among the most effective and efficient instruments available. The Lorenz chart is a graphical depiction of a community's income and wealth distribution. In general, the greater the inequality, the farther the curve shifts away from the baseline, which is indicated by the single straight line. A measure of income disparity is represented by the Gini coefficient and the Lorenz curve, respectively. The Lorenz curve represents the equilibrium of the income size distribution resulting from total equality in the distribution of income. The Gini coefficient, another aggregate metric, is calculated using the Lorenz curve, another aggregate measure. There is a direct link between the two measures in this case. To compute the Gini coefficient, divide the sector in between the Lorenz curve and 45-degree line by the entire sector to the right of the quality line on a graph, then multiply the result by 100. Specifically, the horizontal axis represents the number of income recipients as a fraction of the entire population; the vertical axis, on the other hand, depicts the proportional share of total income received by each percentile

Last Name 2 of the population in the country (Galbraith and Lloyd M Bentsen Jr Chair in Government/Business Relations James K Galbraith, 64). Graph depicting the cumulative health spending of the population shown along the vertical axis. There are deciles on the horizontal axis of that graph. Each decile is numbered from left to right, with the lowest per capita expenditure indicating affluence and the highest per capita consumption denoting excess consumption. When constructing a Lorenz-curve structure, both the lateral and vertical axes move from 0 to 100 percent. As a consequence, the 45-degree lines drawn on the diagonal of the box sketched out by this graph may be used as a benchmark for a perfectly equal dispersion of the population of the country in question, with the 45-degree lines drawn on the diagonal of the box illustrated by this graph (e.g., income or health expenditure). The deviations from the 450 line of the actual cumulative distribution – the so-called "Lorenz or Concentration curve" – indicate the degree to which the object under consideration (earned income, health spending, or physician visits) is skewed or unequally distributed. The more curved the Lorenz concentration curve is, the more unequally distributed the Lorenz concentration curve is over the population as a whole. a. Draw the Lorenz curve for each country: Chart

Last Name 3 15 35 55 75 90 100 0 50 100 150 200 250 Chart Title Country A Country B Cummilative Percent of families Cummilative percent of total income b. Which country is more unequal and why? The 45-degree line of equality, the more the Lorenz curve from the line of equality, the more inequality will be. As shown in the graph, the country B Lorenz curve is far away from the line of equality compared to the country A Lorenz curve. Hence country B is more likely unequal because income is more unequally distributed compared to country A. This can be observed in the above diagram.

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Last Name 4 Works Cited Galbraith, James K., and Lloyd M Bentsen Jr Chair in Government/Business Relations James K Galbraith. Inequality: What Everyone Needs to Know . Oxford UP, 2016.

A Lorenz curve - Copy.edited.edited

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