Applications of Lorenz Curves in Economic Analysis

The Lorenz curve relates the cumulative proportion of income units to the cumulative proportion of income received when units are arranged in ascending order of their income. In the past the curve has been mainly used as a convenient graphic device to represent the size distribution of income and wealth. In this paper the Lorenz curve technique is used as a tool to introduce distributional considerations in economic analysis. The concept has been extended and generalized to study the relationships among the distributions of different economic variables. The generalized Lorenz curves are called concentration curves and the Lorenz curve is only a special case of such curves, the concentration curve for income. Section 2 of the paper gives the derivation of the Lorenz curve. Section 3 provides some theorems relative to the concentration curve of a function and its elasticity, which provide the basis for studying relationships among the distributions of different economic variables. Section 4 discusses applications of the theorems.