How does the Lorenz curve display income distribution?
A Lorenz curve compares the cumulative population share, ordered from lowest income, with the cumulative share of income or consumption.
Mechanism and examples
Population is on the horizontal axis and resource share on the vertical. On the equality line, the bottom twenty percent receives twenty percent of income. A curve farther from the line indicates greater inequality. Analysis should state the assumption that other conditions remain unchanged, because simultaneous changes in real data can alter the outcome. In practice, it first identifies the decision makers, the price or quantity that changes, and the time horizon over which the response is measured. This explains why the same concept can produce different outcomes for households, firms and whole economies.
What matters when interpreting it?
If two curves cross, no simple ranking follows. Within-household sharing and in-kind income may be hidden. The curve shows more distributional shape than the Gini but still depends on data definitions. Data sources, periods, price adjustments and comparison groups can affect the result. To understand why an indicator changed, it is checked against related production, income, employment or price evidence. The concept should therefore be used as an analytical comparison tool with visible assumptions, not as a certain forecast or personal financial recommendation on its own.