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Published byKelly Cooper Modified over 6 years ago

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% of Households Lowest 20% Second 20% Middle 20% Fourth 20% Richest 20% % of Income 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.

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Instead they earn an unequal share. How would the line plot if: 100 80 60 40 20 0 % of Income 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. 20406080100 % 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%).

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% of Households % of Income 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 % of Income 20406080100 % of Households

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100 80 60 40 20 0 % of Income 20406080100 % of Households The 45° line marks absolute equality of income, so Closer-in is more equal. % of Households % of Income Cummulative % Lowest 20%33 Second 20%912 Middle 20%1527 Fourth 20%2451 Richest 20%49100 the further the Lorenz Curve is away from this, the more unequal is the distribution of income.

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