14. Causes of inequality

Question 1

What is income inequality?

Answer 1

Income inequality is the extent to which income is distributed unevenly in a group of people. This may include different types of income e.g. pay, rent received, returns on dividends or other investments.

Question 2

What is wealth?

Answer 2

Wealth refers to the total amount of assets of an individual or household. This may include financial assets, such as bonds and stocks, property and private pension rights.Wealth inequality therefore refers to the unequal distribution of assets in a group of people.

Question 3

What are the 4 causes of income inequality?

Answer 3

1. Education- The quality or status of your school is a big source of income inequality- bad schools tend to produce low earners.
2. Employment- Demand for doctors is highly price inelastic; demand for zero hour shop staff is highly elastic- reflected by wages.
3. Your wealth and inheritance- Many household can use their wealth to generate more and varied sources of income.
4. Age- As we get older our earnings potential often decreases. Many older people rely on state pensions.

Question 4

Why is there so much income inequality between countries?

4

Answer 4

1. Differing educational standards
2. Ownership of wealth and assets
3. Demographic reasons
4. Lack of Employment mobility

Question 5

What is Property Wealth?

Answer 5

any property privately owned in the UK or abroad.

Question 6

What is Physical wealth?

Answer 6

Value of physical assets owned by a household, e.g. antiques, artworks, vehicles and personalized number plates.

Question 7

What is Financial wealth?

Answer 7

Net financial wealth is calculated by subtracting from financial asset values the value of any financial liabilities.

Question 8

What is Private pension wealth?

Answer 8

The value of private pension schemes in which individuals can receive income from either now or in future.

Question 9

What are the 5 causes of wealth inequality in the UK?

Answer 9

1. Pension inequality:
   In recent years, richer households have been able to increase their private sector pension contributions.
2. Property Prices:
   UK house prices have increased much faster than the rate of inflation. Property owners have seen a marked increase in household wealth through rising property prices.
3. Ability to save:
   People on low income rarely have the ability to save. They have a very high marginal propensity to consume.
4. Increased income inequality:
   Since the 1970’s, there has been a widening of income inequality.
5. Regional factors:
   All of the above factors combined lead to far greater inequalities in London compared to the rest of the UK.