Definition
Lorenz Curve
The Lorenz curve graphs the cumulative share of income (or wealth) held by the cumulative share of the population, visually depicting inequality.
On a Lorenz curve, the bottom x% of people are plotted against the y% of income they receive. Perfect equality is a 45-degree line; the more the curve sags below it, the greater the inequality.
The area between the line of equality and the Lorenz curve underlies the Gini coefficient. Economists use Lorenz curves to compare inequality across countries or over time, including for India, where the curve has bowed further from equality as top incomes grew.
Related terms
- Fiscal PolicyFiscal policy is the government's use of taxation and spending decisions, set out mainly in the Union Budget, to influence the economy.
- Gini CoefficientThe Gini coefficient is a measure of income or wealth inequality ranging from 0 (perfect equality) to 1 (one person holds everything), summarising distribution in a single number.
- ExternalitiesAn externality is a cost or benefit of an economic activity that falls on third parties not involved in the transaction, such as pollution (negative) or vaccination (positive).
- Public GoodsPublic goods are non-rival and non-excludable: one person's use doesn't reduce another's, and no one can be easily excluded, so markets underprovide them and governments step in.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.