3.3 Distribution of Income

Question 1

distribution of income

Answer 1

how incomes are shared out between individuals and households

Question 2

income vs wealth?

Answer 2

income - the reward for the service provided by a factor of production, including labour

wealth - market value of all assets owned by a person, group or country at a specific point in time

wealth is a stock of assets, vs income is a flow over time

Question 3

different types of income?

Answer 3

wages - labour - most common type of income, differs dependent on the certain job’s supply and demand

rent - land - income gained by owning land/property and letting others live/work there

interest - capital - reward for saving/lending

profit - enterprise - reward for enterprise (through company shares)

state benefits - incomes for those applicable, e.g. unemployed = jobseeker’s allowance, pensioners = state pension, but they do not represent any output produced

Question 4

calculate income and wealth

Answer 4

income = sum of wages
wealth = sum of everything

Question 5

gross vs net income

Answer 5

gross income - income received before any taxes are taken or benefits given

net income/disposable income - income available after the effect of direct taxes and benefits

UK has a high level of inequality of income

Question 6

causes of differences in distribution of income

Answer 6

• income-earning assets - not all people receive all of the aforementioned incomes as they do not possess these assets (wealth), leading to uneven income distribution
• difference in wages - dependent on supply and demand of labour in each market - many are just paid the NMW/NLW
• reliance on benefits - those who receive no income other than benefits are seen as poorest in UK, e.g. unemployment can be considered a cause
• age - younger + older age groups have lower average incomes than those in the middle
• gender - average income of females is still < of males

Question 7

distribution of wealth

Answer 7

how wealth is shared out between individuals and households

Question 8

causes of differences in distribution of wealth

Answer 8

wealth in UK is more unequally divided than income

• inheritance - some have considerable assets which are passed down through generations, continuing this inequality
• savings - over time people are able to build up wealth, as they earn interest/build their savings
• purchase of property - can be used to earn income for its owners, rent, commercial premises/agricultural land/company shares
• enterprise - may have built up a business from scratch, over time becoming worth millions of pounds

Question 9

consequences of differences in income and wealth for an economy

Answer 9

• poverty + deprivation - those with less than 60% of average income are classified as poor, considerably lower standard of living, unable to afford certain things/replace items, may not have access to certain services/possessions
• poor housing - can lack basic services
• poor health - relationship between inequality and health - more likely to suffer ill health + lower life expectancy due to less healthy diet and lifestyle, higher infant mortality
• inequality of opportunity - live in areas where standard of services, e.g. education is lower than national average - likely to remain poor = difficult to lift themselves out of poverty