The following article will guide you about the two main methods adopted to measure inequality of income. The methods are: 1. The Lorenz Curve 2. The Gini Ratio.

#### Method # 1. The Lorenz Curve:

The Lorenz Curve is obtained by plotting the cumulative percentage of the nation’s income against the cumulative percentage of the nation’s households or population receiving this income. Generally, income is represented on the vertical axis of the diagram and households or popu­lation on the horizontal axis as shown in Fig. 7.

Plotting the figures of the Table 1 in Fig. 1 would result in a straight upward sloping line of absolute equality. The curve on ex­treme right side of the figure—the right an­gled line—represents the limiting case of absolute inequality. The Lorenz Curve is given by the indicated intermediate curve with the shaded area indicating the deviation from absolute equality and hence giving us a measure of the degree of inequality of income distribution.

Of course, in actual practice no nation shows a completely equal distri­bution of income. The lowest 20% of the population (or families) generally receive substantially less than 20% of income, whereas the highest 20% of the population (or families) receive more than 20% of incomes. In that case there will be a curvature in the Lorenz curve as shown in the deviation zone.

The more unequal the distribution of income, the more curvature there will be in the Lorenz curve. Indeed, if all of the income of a country were received by just one family, the curve would be a vertical line at a right angle to the horizontal axis like the extreme right-hand side of the figure. If there is a trend towards a more equal distribution of income, the Lorenz curve will flatten out and move closer to the straight, bisecting line.

#### Method # 2. The Gini Ratio:

Economists often use another technique to measure describe the distribution of income, viz., the Lorenz ratio or the Gini co-efficient. The Lorenz ratio is derived from the Lorenz curve diagram and is defined as “the ratio of the area between the Lorenz curve and the perfect equality line”. In terms of the Fig.8 given below, it is the ratio of the area ‘A’ over the total area ‘A+B’, i.e., the