2.7 Income distribution and Welfare

Question 1

what is income?

Answer 1

the flow of money over a period of time

Question 2

what is wealth?

Answer 2

stock, as measurable at a date in time

Question 3

what income can be earned from each factor of production?

Answer 3

labour-wages
capital-interest
land-rent
Entrepreneurs-profit

Question 4

what is the difference between marketable wealth and non-marketable wealth?

Answer 4

marketable wealth can be transferred to another person, e.g. pension
non-marketable wealth can’t be transferred to another person, e.g. pension rights

Question 5

how can income distribution be considered?

Answer 5

two ways:
Geographical distribution- how income is shared out between different regions
Size distribution- how income is shared out between households

Question 6

What is the Lorenz curve?

Answer 6

illustrates income and wealth distribution, making it an effective way of showing inequality of income within and between countries

Question 7

what is the Gini coefficient(index)?

Answer 7

Ratio of the area between the Lorenz curve and the line of equality, and the area underneath the line of equality

Question 8

what are the policy objectives of a more even distribution of income?

Answer 8

promotes sustainable economic growth
results in more efficient allocation of scarce resources and economy operates at full employment on the PPC
reduces govt welfare payments
promotes social cohesion and reduces market failure

Question 9

what is absolute poverty?

Answer 9

situation in which individuals have insufficient income to purchase the basic necessities for survival

Question 10

what is relative poverty?

Answer 10

situation in which individuals have insufficient income to participate in the normal social life of a country, defined as having an income level below 60% of median household disposable income.

Question 11

draw a diagram of the Lorenz curve

Answer 11

refer to sheet with diagrams on

Question 12

what is income inequality ?

Answer 12

unequal distribution of income

Question 13

what are the causes of poverty and income inequality?

Answer 13

unemployment rates- high rates of unemployment=high rates of relative poverty
proportion of population claiming benefits
Labour productivity rates
industrial structure
living costs

Question 14

what are the consequences of poverty and income inequality ?

Answer 14

under-utilised resources and lower rate of growth
reductio in social cohesion
when income gap is too great acts as disincentive to increase productivity rates
reduce entrepreneurship and innovation