Question

What is measured on the two axes of a Lorenz curve?

Short answer

On the Lorenz curve, the horizontal (x) axis represents the cumulative percentage of population, while the vertical (y) axis represents the corresponding cumulative percentage of income or wealth received by that percentage of the population.

Step-by-step solution

Understanding the Lorenz Curve

The Lorenz curve is a way of representing the inequality within a population, typically in terms of income or wealth distribution. The curve represents cumulative percentage of population against the cumulative percentage of income/wealth received, starting from the lowest to the highest. It helps visualize the difference between the ideal, equal distribution, and the actual distribution.

Horizontal (X) Axis: Cumulative Percentage of Population

On the horizontal axis of the Lorenz curve, the cumulative percentage of the population is recorded. The interpretation is as follows: any point on the horizontal axis represents the proportion of people in the population, starting from the bottom. For example, if the horizontal axis is marked at 40%, it refers to the poorest 40% of the population.

Vertical (Y) Axis: Cumulative Percentage of Income/Wealth

On the vertical axis of the Lorenz curve, the cumulative percentage of income/wealth received by the corresponding percentage of population is recorded. Using the same example of aforementioned 40% population mark on the horizontal axis: if there is a point at 40% on the X-axis and 20% on the Y-axis, it means that the poorest 40% of the population have only received 20% of the total income or wealth. In conclusion, the Lorenz curve graphically demonstrates the income/wealth distribution within a population, comparing it to the ideal situation (equal distribution). The horizontal axis measures the cumulative percentage of the population and the vertical axis measures the corresponding cumulative percentage of income/wealth.