The diagonal line in the diagram represents perfect equality in income distribution, as it shows that if income were perfectly equally distributed, 20% of the population would received 20% of income, 40% would receive 40% of income, and so on. The Lorenz curve plots the actual relationship between percentages of the population and the shares of income they receive.
The figure above plots two Lorenz curves, one for Bolivia, and one for Belarus (based on the data in Table 11.4). In
the case of Bolivia, the poorest 20% of the population receives 2.7% of income; this is shown by point a. Point b on Bolivia’s curve is obtained by adding the 2.7% of income of the poorest quintile to the 6.5% of income received by the second quintile, giving 9.2%, or the cumulative income of the bottom 40% of the population. Similarly, point c is obtained by adding the percentages of income received by the bottom three quintiles, giving 20.2% of income, and finally to find
point d we add the incomes of the bottom four quintiles, getting 38.8% of income for 80% of the population.
When these points are joined together starting from 0 and going up to 100% of the population, we obtain Bolivia’s Lorenz curve. Points e, f, g and h on Belarus’ curve are calculated and plotted in exactly the same way.
Note that to plot a Lorenz curve, we could use income distribution fi gures that divide the population into ten deciles (or tenths), or any other convenient subdivision.
