Understanding the Lorenz curve and how it shows income distribution in IB Economics HL

Lorenz curve: the map that shows who really gets what

Let me ask you a quick question. When we talk about income distribution, which picture best captures who earns how much across a country—the snap of a single number or a curve that unfolds with every percent of people? If you’re aiming to understand inequality at a glance, the Lorenz curve is your go-to visual. It’s the graph that tells a story about fairness, opportunity, and how far we are from an even split.

What the Lorenz curve actually is

Think of a country’s population lined up from the poorest to the richest. The Lorenz curve plots two things together:

• On the x-axis: the cumulative share of people, from 0% up to 100%.

• On the y-axis: the corresponding cumulative share of income (or wealth) those people own, also from 0% to 100%.

So if everyone earned the same income, the Lorenz curve would sit right on the diagonal line that runs from the origin to the top-right corner—the 45-degree line of perfect equality. Real life, of course, isn’t that neat. The curve usually stays below that line. The further it bows away from equality, the more unequal the income distribution.

Now, how to read it without breaking into a sweat

Here’s the thing: you don’t need a math degree to get what the curve is saying. A few simple ideas will do.

• Start at the origin. The poorest 0% of people have 0% of income.

• Move along. As you pass through more of the population, you’ll accumulate a larger share of income, but the curve rarely climbs steadily in a straight line.

• Compare to the line of equality. The gap between the Lorenz curve and the 45-degree line shows inequality. The bigger the gap, the more unequal the distribution.

• Note the endpoints. The Lorenz curve ends at (100%, 100%), because the richest 100% of people own all the income. The shape in between is what matters.

If you’re studying for an IB Economics HL course, this visual is super handy when you’re asked to interpret what a curve says about a country, a region, or a policy change. It’s not just a picture; it’s a narrative about who benefits from growth, and who doesn’t.

How the Lorenz curve fits with related concepts

You’ll encounter a few other ideas that look related but sit in their own lane. It helps to keep them straight so you don’t mix them up during a test or in class discussions.

• Gini coefficient: This is the numeric sidekick to the Lorenz curve. It compresses the entire curve into a single number, usually between 0 and 1 (or 0 and 100, if you prefer percentages). A Gini of 0 means perfect equality; a Gini of 1 (or 100) means one person has everything. The Gini is calculated from the area between the Lorenz curve and the line of equality, so a bigger gap means a bigger Gini.

• Laffer curve: This isn’t about income distribution, but about tax policy. It shows the relationship between the tax rate and tax revenue. It helps explain why raising tax rates doesn’t always yield more revenue—there’s a point where high rates discourage doing business or reporting income.

• Comparative advantage: This is a trade concept that explains why countries specialize and trade. It’s great for thinking about efficiency and growth, but it doesn’t map income distribution directly. It sits in the trade theory section, not the inequality section.

A little practice with a simple example

Imagine a country where the bottom 60% of people earn 20% of total income, and the top 40% share the remaining 80%. That’s a stylized setup, but it makes the idea clear. If you plot the cumulative shares, you’d see a curve that stays below the diagonal, bending more as you move toward the top end. The line of equality would be a straight, gentle climb. The more the curve bows, the more unequal the country’s income distribution.

Why this matters beyond the graph

You might be wondering, “What’s the point of staring at a curve?” Here’s the practical angle:

• Policy design: If inequality is widening (the Lorenz curve bows more), policymakers might consider progressive taxes, targeted transfers, or investments in education and health to tilt the curve toward equality.

• Economic performance: Extreme inequality can hinder demand, innovation, and social cohesion. A moderate, well-balanced distribution can support more robust growth and share prosperity more widely.

• Social indicators: Income distribution links to broader measures—poverty rates, human development, and social mobility. The Lorenz curve is a quick, intuitive way to visualize those connections.

Common misreads you’ll want to avoid

• It’s not a measure of wealth versus income alone. The Lorenz curve can show distribution of either, though in many IB discussions we focus on income.

• It’s not a single number. The Gini coefficient is convenient, but it loses some of the curve’s nuance. If you’ve got time, glance at the curve itself to catch the story that the number hides.

• It’s not about which country is “good” or “bad.” The curve tells you about distribution at a moment in time or after a policy change. The interpretation should be careful, grounded in data and context.

A quick mental model you can carry around

Picture a pizza cut into unequal slices. If the slices were distributed evenly, you’d get a straight line from the corner to the opposite corner as you add people. If the slices are lopsided, the initial few big slices mean the early part of the population holds a large share of the pizza, and the rest chase a dwindling slice. The Lorenz curve is just a graph version of that intuition, translating “who owns how much” into a visual map.

Bringing in data sources and real-world relevance

In the real world, we see Lorenz curves in publications from the World Bank, OECD, and national statistical offices. They’re plotted for decades to show how inequality shifts with growth, technology, or policy reforms. You’ll often hear about “pre-tax” versus “after-tax” Lorenz curves, or “market” vs “post-transfer” distributions. Those contrasts reveal how much a government’s taxes and transfers can reshape the curve, narrowing that bow toward the line of equality.

A few takeaways you can hold onto

• The Lorenz curve is the premier graphical tool for income distribution. It visually encodes who benefits from income generation and how equity stacks up.

• The more the curve bows away from the line of equality, the greater the inequality.

• Use the Lorenz curve in tandem with the Gini coefficient for a numeric sense of inequality, but don’t forget to glance at the shape to catch nuances.

• Remember the contrast curves: the Laffer curve is about tax revenue versus tax rate, and comparative advantage is about efficiency in production, not distribution. They’re useful, but in different conversations.

Let’s tie it all together with a little reflection

If you’re studying economics, you’re learning not just about who makes what, but about what those numbers imply for real people. The Lorenz curve gives you a concrete, visual handle on that idea. It’s not just a line on a page; it’s a story about opportunity, fairness, and the social fabric that holds a country together.

If you want to keep sharpening your intuition, grab a few country data sets—maybe from the World Bank’s databank—and plot the Lorenz curves yourself. Compare a high-income economy with a lower-income one, or look at changes in a country before and after a major policy reform. You’ll notice the curve’s bow telling you things you might not see from a single statistic alone.

A final thought: in classrooms and in real-world policy rooms alike, the Lorenz curve invites you to ask good questions. Who is left out? Which policy tweaks would bend the curve toward more shared prosperity? How does change in growth affect the curve, and what does that imply for people living on the edge of the distribution?

If you keep that mindset, the curve stops being a mere graph and becomes a lens for understanding inequality—clear, accessible, and, surprisingly often, hopeful.