The Lorenz curve displays income inequality by illustrating how income is distributed among the population. It plots cumulative income against the cumulative share of the population. A perfect equal distribution would show a diagonal line from the bottom left to the top right on the graph, while real-world data typically results in a curved line below this diagonal. The greater the distance between the Lorenz curve and the diagonal line of perfect equality, the higher the level of income inequality within a specific society or country. Policymakers use the Lorenz curve to assess and address issues of inequality effectively.

The Lorenz curve is a graphical representation used to analyze the distribution of income or wealth within a population. Constructing a Lorenz curve involves a series of steps. First, the data must be sorted based on income or wealth levels from lowest to highest. Next, the cumulative percentage of the total income or wealth is calculated for each corresponding group. A graph is then created, with the cumulative percentage on the y-axis and the cumulative percentage of the population on the x-axis. Finally, a line of equality is drawn to represent perfect equality, and the Lorenz curve is plotted by connecting the cumulative percentage points on the graph. The resulting curve visually illustrates income or wealth inequality within a society.