# How to create a lorenz curve

The horizontal axis of the Lorenz curve is then the cumulative percentage of these lined up people that are being considered. Hubbert Curve The Hubbert curve is a statistical theory of oil production that states that the rate of extraction from a particular region follows a bell shaped curve. Investing Financial Analysis. In this example, the point 25,5 represents the hypothetical fact that the bottom 25 percent of people have 5 percent of the income. To do this, imagine lining people or households, depending on context in an economy up in order of income from smallest to largest. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This is simply because the bottom 0 percent of the population which has no people has, by definition, zero percent of the economy's income, and 100 percent of the population has 100 percent of the income. Social Sciences Economics Basics U. Related Articles.

Plotted as a Lorenz curve, complete equality would be a straight diagonal line with a slope of 1 the area between this curve and itself is 0, so the Gini coefficient is 0. The farther away the curve is from the baseline, represented by the straight diagonal line, the higher the level of inequality.

A simplified approach. The curve above shows the income distribution in Brazil in 2015, compared to a straight diagonal representing perfect equality. The rest of the curve is then constructed by looking at all of the percentages of the population between 0 and 100 percent and plotting the corresponding percentages of income. Financial Analysis What is the current yield curve and why is it important? The Lorenz Curve is one way to graph inequality in income distribution. Popular Courses.

## Lorenz Curve

Accounting for negative wealth or income, the figure can theoretically be higher than 1; in that case, the Lorenz curve would dip below the horizontal axis. Financial Analysis Calculating volatility: The dotted line on the diagram is the 45-degree line that represents perfect income equality in an economy. Perfect income equality is if everyone makes the same amount of money. The 99th percentile corresponds to 88. Your Money.

The point 50,20 shows that the bottom 50 percent of people have 20 percent of the income, and the point 75,40 shows that the bottom 75 percent of people have 40 percent of the income. This is simply because it is mathematically impossible for the bottom 20 percent of earners to make more than 20 percent of the income, for the bottom 50 percent of earners to make more than 50 percent of the income, and so on.

## The Lorenz Curve

Related Terms Gini Index The Gini index is a statistical measure of distribution often used as a gauge of economic inequality. Financial Analysis. Forget Gini, Go With Palma.