% of Households

Lowest 20%

Second 20%

Middle 20%

Fourth 20%

Richest 20%

% ofIncome

3

9

15

24

49

This model shows the distribution of income across households in an economy. It is a rough guide to the extent of inequalities that may exist.

We need to know how much different groups earn in our economy

Households are divided into quintiles (1/5ths) according to their income.

The percentage to total income earned by each quintile is then calculated.

Instead they earn an unequal share. How would the line plot if:100

80

60

40

20

0

% o

f In

com

e

This model shows the distribution of income across households in an economy. It is a rough guide to the extent of inequalities that may exist.

On the x-axis we show the cummulative percentage of households.

20 40 60 80 100% of Households

On the y-axis we show the cummulative percentage of income that they earn.

If all households earned an equal share of the total income then a 45° line would be plotted.But they don’t.The bottom 20% of households earn 3% of the income.The next 20% of households earn 9% of the income (so the bottom 40% earn 12% of the income).The middle 20% earn 15% of the income (so now the bottom 60% earn 27% of the income).The fourth 20% earn themselves 24% of the income (so the bottom 80% earn 51% of the income).And the top 20% of earners get the rest (49%).

% of Households

% ofIncome

Cummulative %

Lowest 20% 3

Second 20% 9

Middle 20% 15

Fourth 20% 24

Richest 20% 49

3

12

27

51

100

The data table will now look like this:

100

80

60

40

20

0

% o

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20 40 60 80 100% of Households

100

80

60

40

20

0

% o

f In

com

e

20 40 60 80 100% of Households

The 45° line marks absolute equality of income, so

Closer-in is more equal.

% of Households

% ofIncome

Cummulative %

Lowest 20% 3 3

Second 20% 9 12

Middle 20% 15 27

Fourth 20% 24 51

Richest 20% 49 100

the further the Lorenz Curve is away from this, the more unequal is the distribution of income.