Lorenz Curve



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When measuring inequality in an economy, the size of income distribution is considered. One method of measuring the size of income distribution is the Lorenz Curve. An alternative method to the Lorenz Curve is the Gini Coefficient. 

The Lorenz Curve was named after its developer, Max Lorenz, in 1905. It is a curve showing the proportion of national income ("total value of goods and services produced in a country over a year") earned by any given percentage of the population measured from the poorest to the richest. The Lorenz Curve is constructed with the percentage of income shown on the vertical axis and the population on the horizontal axis. 

If there is perfect equality of income, this means everyone gets the same amount of income, shown by a 45-degree line. So, the closer the curve to the 45-degree line, the less inequality exists in the economy. However, the further the curve is from the 45-degree line, the more inequality exists. Note the Lorenz Curve is not always precise.

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