CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics
Prof. A. R. Gutowsky
Economics 1A
Exercise 2 (Optional) -- Lorenz Curve
You are to derive lorenz curves for 1970 and 1997. A lorenz curve relates the percentage of income received by households. Usually such data is presented in quintiles, i.e., fifths. However, before plotting the two curves draw a lorenz curve that has a 45-degree slope. Such a curve represents a lorenz curve denoting an equal distribution of income, i.e, 10 percent of the households receive 10 percent of the income, 20 percent of households receive 20 percent of the income, so on and so on.
The household and income data is presented in fifths (quintiles), hence, you will need to combine the income data to determine what the percentage of income was received by lowest 40, 60 and 80 percent of households. For example, in 1970 the lowest 20 percent of the households received 5.4 percent of household income while the lowest 40 percent of household received 17.6 percent of household income, that is, I added the 5.4 percent received by the lowest fifth to the 12.2 percent received by the next fifth. Repeat this for the next fifth, etc.
To obtain data on the distribution of income within the United States use the Census Bureau publication entitled STATISTICAL ABSTRACT OF THE UNITED STATES 1999 which can be accessed at: www.census.gov/prod/99pubs/99statab/sec14.pdf This table 751.
Question: What has happened to the distribution of income within the United States?
Explain.
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