Saying a country is “quite unequal” gets you nowhere. Economists need a picture and a number: the Lorenz curve shows the shape of the distribution, and the Gini coefficient squeezes that shape into one figure you can compare across countries and across years.
📚 What you need to know
A Lorenz curve plots the cumulative % of income against the cumulative % of population, poorest first.
The straight 45° diagonal is the line of perfect equality: 20% of people receive 20% of income, 40% receive 40%, and so on.
The further the curve sags away from the diagonal, the more unequal the distribution.
The Gini coefficient = area A ÷ (area A + area B), where A is the gap between the diagonal and the curve.
Gini runs from 0 (perfect equality) to 1 (one household has everything). It is sometimes reported as a Gini index from 0 to 100.
A falling Gini and an inward shift of the Lorenz curve both mean inequality has narrowed.
Data is usually given in quintiles (fifths) or deciles (tenths), and must be made cumulative before plotting.
Reading the picture
Rank every household from poorest to richest. Then ask: what share of total income does the poorest 20% receive? The poorest 40%? Keep going and plot the answers. If income were shared perfectly evenly, every answer would match the population share and you would trace the diagonal exactly.
Real distributions never do that. The poorest fifth always receives less than a fifth of income, so the curve dips below the diagonal and then bends sharply upwards at the top end where the richest households sit.
Area A is the inequality gap. If the curve lay on the diagonal, A would vanish and the Gini would be zero.
The Gini coefficient
Gini = area A ÷ ( area A + area B )
0 = perfect equality 1 = perfect inequality
You will not be asked to work out areas A and B by hand. What you will be asked to do is read a Gini figure, compare two of them, and connect the number to the shape of the curve. A lower Gini means a curve closer to the diagonal — say that sentence in every answer.
Turning quintile data into a curve
Exam data almost always arrives as shares per quintile, which are not cumulative. Adding them up is the step students most often skip.
🧩 Plotting a Lorenz curve in five moves
Check the order. The poorest fifth must come first. If the table is the other way round, reverse it.
Make the income shares cumulative by running totals: 3, then 3+6, then 3+6+11, and so on.
Check the last figure is 100. If it is not, you have made an arithmetic slip.
Plot each pair (20, first total), (40, second total), up to (100, 100), and start at the origin (0, 0).
Draw the diagonal from (0, 0) to (100, 100) and label it the line of perfect equality.
WORKED EXAMPLE
Convert the data into cumulative shares and state which country is more unequal. [4]
Share of income
Poorest 20%
2nd 20%
3rd 20%
4th 20%
Richest 20%
Northland
7%
12%
17%
23%
41%
Sudmar
3%
6%
11%
20%
60%
Step 1: running totals for Northland7, 19, 36, 59, 100Step 2: running totals for Sudmar3, 9, 20, 40, 100Step 3: compare at the same pointPoorest 60%: Northland 36%, Sudmar 20%Richest 20%: Northland 41%, Sudmar 60%Sudmar is more unequal — its curve sags furtherEvery Sudmar total is lower until the final point, so its curve lies entirely below Northland’s and its Gini must be higher.
Both curves must start at the origin and finish at 100/100. Only the sag in between tells you anything.
Reading a Gini figure
There is no official cut-off between “equal” and “unequal”, but these rough bands help you comment sensibly.
Gini coefficient
What it usually looks like
Below 0.30
Relatively equal. Typical of countries with strong progressive taxes and generous transfers.
0.30 to 0.40
Moderate inequality. Most high-income economies sit somewhere in this range after tax.
0.40 to 0.50
High inequality, often with a large informal sector or weak redistribution.
Above 0.50
Very high inequality, usually with a small elite holding a large share of income and assets.
WORKED EXAMPLE
Sudmar’s Gini coefficient fell from 0.51 to 0.43 over eight years. Using a Lorenz curve diagram, explain what happened. [4]
Step 1: which direction is which?
Closer to zero means closer to perfect equality.
Step 2: say what happened0.51 → 0.43, so income inequality fellStep 3: link the number to the diagram
The Lorenz curve shifted inwards, towards the line of perfect equality, so area A shrank relative to area B.
Step 4: say what that means for households
Each cumulative point rose: the poorest 20%, 40% and 60% each received a larger share of total income than before.
Inequality narrowed; the curve shifted inwardsMarks here are for a labelled diagram with two curves and a clearly drawn inward shift — not for the arithmetic.
What the Gini cannot tell you
Evaluation questions almost always want the limits of the measure. These are the strongest lines:
The same Gini can hide different distributions. Two countries can share a Gini of 0.40 with completely different shapes — one with a squeezed middle, one with a very rich top 1%.
It measures income, not wealth. Wealth is far more concentrated, so an income Gini understates the true gap in economic power.
Before or after tax? Market-income Gini and disposable-income Gini can differ by 0.15 or more. Always check which one the data reports.
It says nothing about the standard of living. A poor country can be relatively equal, and a rich one very unequal. Gini is about shares, not amounts.
It ignores non-cash benefits. Free healthcare, state schooling and subsidised housing raise real living standards without appearing as income.
Data quality varies. Household surveys tend to under-record the very richest and miss the informal economy, so comparisons across countries are rough.
It is a snapshot. High mobility between income groups makes a given Gini less troubling than the same figure in a rigid society.
A quick alternative measure examiners like to see mentioned: the quintile ratio, which divides the income share of the richest 20% by that of the poorest 20%. For Sudmar that is 60 ÷ 3 = 20; for Northland 41 ÷ 7 ≈ 5.9. Simple, and it makes the contrast vivid.
💡 Exam tip
Label both axes as cumulative percentages. Missing the word “cumulative” costs the axis mark.
Always draw the diagonal and label it the line of perfect equality — it is usually worth a mark on its own.
Start at the origin. A Lorenz curve that does not begin at (0, 0) and end at (100, 100) is wrong.
When comparing two years, draw both curves on one diagram and mark the direction of the shift with an arrow.
Quote at least one cumulative figure when describing a curve: “the poorest 60% received only 20% of income”.
Say whether the Gini is before or after taxes and transfers if the data allows — it is an easy evaluation point.
⚠ Common mix-up
Plotting raw quintile shares instead of cumulative totals. The curve then bends the wrong way.
Thinking a higher Gini is better. Higher means more unequal, always.
Confusing the coefficient with the index. 0.43 and 43 are the same thing on different scales.
Drawing the curve above the diagonal. It can only lie on or below it.
Reading a lower Gini as lower poverty. Everyone can get poorer together while the Gini falls.
Assuming perfect equality is the goal. A Gini of 0 would remove the incentive to acquire skills or take risks.
Up next: Poverty and How It Is Measured — from shares of the pie to whether a household has enough to live on at all.
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