Lorenz Curve definition :
Lorenz curve is a graphical representation of wealth distribution. It was developed by an American economist Max Lorenz, after whom it got its name from, in 1905. The graph has a straight diagonal line that represents a hypothetical equality of perfect distribution of wealth, and the Lorenz curve below it, that represents the reality of distribution of wealth. The difference between those two lines is the difference between wealth distribution, which is described by the Gini coefficient.
This is a simple way of describing distribution of income with a classical graph. In order to make this understandable, picture people lined up from those who have lowest income to those with the biggest income. The horizondal axis of the Lorenz curve would represent the summed percentage of the people lined up based on their income. To clarify this, imagine that the 20th person lined up on the horizontal axis is equal to the bottom 20 percent, the 50th represents the bottom 50%, the 60 represents 60% etc.
On the same graph, the vertical axis represents the percentage of total income.
How to draw Lorenz Curve in Excel ?
There are excellent video about Lorenz Curve drawing at youtube :
Step 1 : Enter in table %income, %population and other research columns.
Step 2: Add new column %Income/%Population where you need divide values
Step 3: Sort new column %Income/%Population
Step 4 : Add columns for Cumulative % Population and Cumulative % Income and add one row for zeros.
Step 5: Using the cumulative % columns, insert a scatter plot
Step 6: Add the equality line to the chart.