Question

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

Short answer

On the x-axis of a Lorenz curve, the cumulative percentage of the population is measured, while on the y-axis, the cumulative percentage of income or wealth within the given population is measured. The Lorenz curve is used to illustrate the distribution of income or wealth in a population and helps to determine the level of income inequality.

Step-by-step solution

Identify the x-axis

On the x-axis of a Lorenz curve, we measure the cumulative percentage of the population. It starts from 0% (no one) and goes up to 100% (everybody in the population).

Identify the y-axis

On the y-axis, we measure the cumulative percentage of income or wealth within the given population. It also starts from 0% (no income) and goes up to 100% (total income or wealth in the population).

Understand the significance of the Lorenz curve

The Lorenz curve aims to illustrate the distribution of income or wealth in a given population. It helps to determine the level of income inequality by comparing the actual distribution of income (the Lorenz curve) against a theoretical line of complete equality (where every individual has the same income or wealth). The more the Lorenz curve deviates from this line of equality, the greater the level of inequality in the population.