20. Equity in the distribution of income

Question 1

Reasons for low income (poverty)

Answer 1

• born in household of low income
• low level of education
• poor helth/malnutrition
• had to find work before completing education

Question 2

Consequences of poverty

Answer 2

• low living standards
• lack of access to healthcare
• low levels of education

Lead to low levels of human capital - into poverty cycle

Question 3

Define equity

Answer 3

Equity = fairness

Question 4

Define equality

Answer 4

EQUALITY: everyone recieves the same

Question 5

How is income inequality measured in an economy

Answer 5

Lorenz curve represents - x-axis cumulative percentage of toal population, y-axis cumulative percentage of total income earned

Gini index - from Lorenz curve - the ratio A between line of equality and Lorenz : total A under line of equality (the higher - the more unequal)

Question 6

Types of taxes used to distribute income

Answer 6

• direct taxes: atxes imposed on people’s income or wealth and on fimrs’ profits
• indirect taxes: inmposed on expenditure of a product or service (ex VAT)
• progressive taxes: taxes which rise as income rises, are proportional to income
• regressive taxes: proprotion of income paid falls as income rises (indirect taxes)
• proprotional taxes: taxes which are a of constant proportion paid by all incomes

Question 7

Explain transfer payments

Answer 7

TRANSPFER PAYMENTS: different types of assitance to groups in the economy to improve living standards

Not income - child support assistance, pensions, unemployment benefits, subsidies to producers

Question 8

Free market supporters believe gov should not interfere, what are the arguments

Answer 8

• firms have to pay insurance - hire less workers - higher unemployment
• high taxes discourage entrepreneurial activity - leave to favourable tax climates
• high taxes - negative effect on economic growth

Do not support taxes as a way to redistribute income