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.
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.
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.