2) income distribution and wealth

Question 1

What is income + give examples

Answer 1

Income= a flow of money going to factors of production

-ie wages, salaries, welfare benefits, profits, interest

Question 2

What is wealth + give examples

Answer 2

Wealth= a stock concept

-ie savings, ownership of shares, ownership of properties

Question 3

What is poverty and what is it generally caused by?

Answer 3

Hunger, lack of shelter, no access to schooling or doctors.

Caused by a lack of income, wealth or both.

Question 4

What are the mean and median income values for a week, and where is the poverty line determined?

Answer 4

Mean= £509
Median= £407
poverty line is 60% of £407

Question 5

Between 2012-14, what % increase in wealth did the top 10% see, and bottom 50%??

Answer 5

Top 10% = 21% increase

bottom 50%= 7% increase

Question 6

How can wealth and income inequality be measured??

Answer 6

Looking at the share of national income going to different groups and the proportion of households living below the poverty line of £244 a week

Question 7

What’s the main cause of wealth inequality??

Answer 7

Wealth inequality tends to be exacerbated when the price of assets such as property and shares are rising rapidly.

Question 8

What is the relationship between wealth and income

Answer 8

Consistent good income overtime generates wealth, but increased wealth also generates income ie savings paying interest.

Question 9

What does the Lorenz curve do and how is it divided??

Answer 9

describes income distribution by comparing % of population with % of income. Vertical axis=% of income and horizontal is population.
Both are divided into deciles (10%) to compare, and the more the curve moves from the straight line, the more unequal it is.

Question 10

What is the gini co-efficient and how does it measure inequality? Best and worst country

Answer 10

Measured between 0 and 1, where everyone earns equal amounts at 0, and 1 person earns all the money at 1.
Sweden is very equal at 0.24, whilst South Africa is worst in the world with 0.65

Question 11

Whats good/ bad about Lorenz curve and gini co-efficient??

Answer 11

Lorenz curve- good for 1 country but can’t compare a wide range of countries
Gini- widely used (comparable) and gives good picture but no good at analysing extremities of inequality.

Question 12

Why do governments redistribute income??

Answer 12

• Fairness
• AD- inequality negatively effects AD because if large areas of the country are income deprived, they contribute less to economic growth
• LRAS- in the long run human capital is of a lower quality as low income people can’t afford education/ training, lowering capacity of economy.
• SRAS- in the short run, low income people stuck in low wage cycles, creating demotivation and disincentives to work, reducing employment and productivity
• economic development- low pay contributes to poverty, poor health/ education increases social-ills ie crime, corruption, low adult literacy, decreasing HDI rankings