BharatNotes What is Lorenz Curve?
The Lorenz curve is a graphical tool for depicting how equally (or unequally) income or wealth is distributed across a population. The horizontal axis shows the cumulative share of the population, ranked from poorest to richest, and the vertical axis shows the cumulative share of income or wealth that group holds. A point on the curve reads as a statement such as "the bottom 40% of households earn 20% of total income."
It was developed by American economist Max O. Lorenz in 1905 in his paper "Methods of Measuring the Concentration of Wealth," and the name "Lorenz curve" was later coined by Willford I. King in 1912.
Key Features
- Line of perfect equality: A 45-degree diagonal (y = x), where the bottom N% always holds exactly N% of income. The closer the actual curve hugs this line, the more equal the distribution.
- Line of perfect inequality: The L-shaped boundary along the axes, where one person holds all income.
- The bow: A real economy's curve always sags below the diagonal; the greater the sag, the greater the inequality.
- It can be drawn for income, wealth, consumption, or even land holdings.
Link to the Gini Coefficient
The Lorenz curve is the basis for the Gini coefficient. If A is the area between the line of equality and the Lorenz curve, and B is the area below the curve, then:
| Term | Meaning |
|---|---|
| Gini = A / (A + B) | Ratio of the gap area to total area under the equality line |
| Gini = 0 | Perfect equality (curve = diagonal) |
| Gini = 1 | Perfect inequality |
Because the curve sits in a unit square, the area under the diagonal is always 0.5, so a larger bow means a smaller B and a higher Gini.
Current Status and Indian Context
According to the World Bank's Poverty & Equity Brief (April 2025), India's consumption-based Gini index improved from 28.8 in 2011-12 to 25.5 in 2022-23 (based on the NSO Household Consumption Expenditure Survey 2022-23), placing India among the world's more equal economies on this measure. The World Bank cautions that consumption-based Gini figures are not strictly comparable across countries, and income-based estimates (e.g., the World Inequality Database) show a much higher figure, underscoring that the Lorenz curve's message depends heavily on whether income, consumption, or wealth is plotted.
UPSC Angle
The Lorenz curve is a foundational GS3 concept that supplies the visual logic behind inequality debates. Use it to explain why two economies with the same average income can differ sharply in equity, and to interpret Gini movements in the Economic Survey. A key exam caution: do not confuse the Lorenz curve (a distribution graph) with the Gini coefficient (a single number derived from it), and remember that consumption-based and income-based inequality tell different stories.
