The graphical representation illustrates the distribution of income or wealth within a population. It plots the cumulative percentage of total income received against the cumulative percentage of recipients, starting with the poorest. A perfectly equal distribution is represented by a straight diagonal line; the curve itself falls below this line, indicating inequality. The greater the area between the diagonal and the curve, the more unequal the distribution. For instance, if the bottom 20% of the population holds only 5% of the total income, this point is plotted on the graph, contributing to the shape of the curve.
This visual tool is crucial for understanding the degree of inequality in a society or economy. It allows for comparisons across different regions, time periods, or policy interventions. Policymakers use it to assess the impact of taxation, social welfare programs, and other measures aimed at reducing income disparities. Historically, its development provided a standardized method for measuring and comparing income inequality, leading to more informed policy debates and interventions.
