Regarding the Lorenz curve and you are waiting for the state’s demographers office, how would you...

Regarding the Lorenz curve and you are waiting for the state’s demographers office, how would you (1) describe and explain a Lorenz curve and (2) how would you describe and explain how a Lorenz curve is constructed?

Expert Solution

Answer)

Lorenz curve is a curve showing the proportion of the population that has accumulated a particular percentage of the total wealth in an economy. In other words it is a curve which shows the extent of the inequality prevailing in a particular country on the basis of population and income distribution structure.

To make the Lorenz curve first, calculate the cumulative percentage of population and the cumulative percentage of the income share in an economy.
Then we graph the share of income for the corresponding cumulative proportion of population.
We can see in the below diagram the line which is straight is the line of equality which means that the cumulative share of population is exactly equal to the cumulative share of income meaning that the income is equally distributed.
The blue curve is the lorenz curve. Share of income is plotted on the vertical axis and share of population is plotted on the horizontal axis. The value 80 on the horizontal axis and value 20 on the vertical axis means that the bottom 80% of the individuals in the economy are getting only 20% share of income.

Rahul Sunny answered 8 months ago

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