3.3 Addressing income and wealth inequality

Question 1

What is the difference between income as a flow concept and wealth as a stock concept?

Answer 1

Income is the flow of money or resources received within a defined time period (e.g., monthly or yearly), while wealth represents the total value of assets and liabilities at a particular moment, reflecting the accumulation of resources over one’s lifetime.

Question 2

How can you measure income and wealth inequality?

Answer 2

The Gini coefficient is a measure of income or wealth inequality, ranging from 0 (perfect equality) to 1 (perfect inequality). It’s calculated using data on income or wealth and indicates how resources are distributed within a population. Higher Gini values reflect greater inequality.

Question 3

What are a few policies to redistribute income?

Answer 3

Minimum wage
transfer payments
progressive income taxes
state provision of essential goods and services

Question 4

What are transfer payments?

Answer 4

They are welfare payments from the gov. They aim to provide a minimum standard of living for those on low incomes

Question 5

What is nationalisation?

Answer 5

This occurs when private-sector assets are sold to the public sector. In other words, the gov gains control of an industry so it is no longer in the hands of private firms. By doing this, natural monopolies are created. This is as it would be inefficient to have multiple sets of water pipes. Social welfare may be the main priority of nationalised industries, not profit

Question 6

What is privatisation?

Answer 6

This means that assets are transferred from the public sector to the private sector. Gov sells a firm so that it is no longer in their control. The firm is left to the free market and private individuals.