1. The Lorenz curve is a method for the graphical representation of the cumulative share of the total income that accrues to successive income-brackets. The horizontal axis (X) represents population shares cumulated from the lowest income class to the highest income class. The vertical axis (Y) represents the corresponding cumulated income shares. The point of origin is at the lower left corner of the graph. From that point, cumulative population share increase to the right along the X axis, while cumulative income shares increase in an upward path along the Y axis. Although the Lorenz curve was developed originally to illustrate income distribution, it has since been modified for uses as a general tool in economic analysis to study the relationship among the distributions of different variables. The generalized Lorenz curve is also called concentration curve. In a Lorenz curve that plots population share against income share, a 45 degree line from the point of origin (lower left corner) would reflect an income distribution pattern wherein all population share groups received a proportionate share of national income. The Lorenz curve, however, typically is a convex line, which reflects a proportionately lower share of national income for the earlier population shares along the cumulative population (X) axis, with the cumulative income share increasing much more rapidly along the Y axis after the cumulative population share exceeds 65 percent along the X axis. The Lorenz curve provides an easy to understand reflection of the extent to which income inequality exists within an economy.
2. Income distribution refers to the proportional share of economic benefits received by the different segments comprising an economy. The definition of segments tends to shift (based on the perspective of the examination), and the composition of segments tends overlap as the perspective changes. Within domestic economies, economists often di...