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.
% of
Households
% of
Income
Lowest 20%
3
Second 20%
9
Middle 20%
15
Fourth 20%
24
Richest 20%
49
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.
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.
If all
Instead
On
the
households
x-axis
y-axis
they earn
we show
earned
an unequal
the
an
share.share
cummulative
equal
How would
ofpercentage
the the
total
lineof
plot if: then
households.
income
that they
a 45°earn.
line would
The
bottom 20% of households
be plotted.
earn
3% of
the income.
But they
don’t.
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%).
100
% of Income
80
60
40
20
0
20
40
60
80
% of Households
100
The data table will now look like
this:
100
% of Income
80
60
40
% of
Households
% of
Income
Cummulative
%
Lowest 20%
3
3
Second 20%
9
12
Middle 20%
15
27
Fourth 20%
24
51
Richest 20%
49
100
20
0
20
40
60
80
% of Households
100
The 45° line marks absolute equality
of income, so the further the Lorenz
Curve is away from this, the more
unequal is the distribution of income.
100
% of Income
80
60
40
Closer-in is more equal.
% of
Households
% of
Income
Cummulative
%
Lowest 20%
3
3
Second 20%
9
12
Middle 20%
15
27
Fourth 20%
24
51
Richest 20%
49
100
20
0
20
40
60
80
% of Households
100