Define Lorenz Curve. When is it used?
It is the form of a curve which is derived from the cumulative percentage of the given variables. This curve was given by Dr. Max O. Lorenz a popular Economic- Statistician. He studied distribution of Wealth and Income with its help.
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It is graphic method to study dispersion. It helps in studying the variability in different components of distribution especially economic. The base of Lorenz Curve is that we take cumulative percentages along X and Y axis. Joining these points we get the Lorenz Curve. Lorenz Curve is of much importance in the comparison of two series graphically. It gives us a clear cut visual view of the series to be compared.
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Describe steps to plot ‘Lorenz Curve’
- Cumulate both values and their corresponding frequencies.
- Find the percentage of each of the cumulated figures taking the grand total of each corresponding column as 100.
- Represent the percentage of the cumulated frequencies on X axis and those of the values on the Y axis.
- Draw a diagonal line designated as the line of equal distribution.
- Plot the percentages of cumulated values against the percentages of the cumulated frequencies of a given distribution and join the points so plotted through a free hand curve.