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Lorenz curve

Graphical representation of the distribution of income or of wealth / From Wikipedia, the free encyclopedia

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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.

A typical Lorenz curve

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 (see below). 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 concept is useful in describing inequality among the size of individuals in ecology[1] and in studies of biodiversity, where the cumulative proportion of species is plotted against the cumulative proportion of individuals.[2] It is also useful in business modeling: e.g., in consumer finance, to measure the actual percentage y% of delinquencies attributable to the x% of people with worst risk scores.