3.3 Fair distribution of income

Question 1

What is meant by the distribution of income?

Answer 1

How income is shared out between individuals and households in a country. Or how all the money flowing around an economy is shared out between individuals

Question 2

What is income?

Answer 2

A flow of money over time, often as a reward for use of a factor of production.

Question 3

What are the 5 types of income?

Answer 3

wages, rent, interest, profit and state benefits

Question 4

What are wages?

Answer 4

The reward for work. For highly skilled jobs, wages will be higher as there will be a limited supply of labour and so firms must compete in order to attract them.

Question 5

What is rent?

Answer 5

the reward for use of land for a period of time

Question 6

What is interests?

Answer 6

The reward for saving or lending

Question 7

What is profit?

Answer 7

The reward for enterprise

Question 8

What is state benefits?

Answer 8

The gov transfers income by taxing some people and paying benefits to others

Question 9

What is the difference between income and wealth?

Answer 9

Income is a flow of money over a period of time, whereas wealth is the monetary value of assets one owns at a specific time.

Question 10

What is wealth?

Answer 10

The monetary value of all the assets one owns at a specific time

Question 11

What are some examples of assets that can contribute to ones wealth?

Answer 11

a car, property, houses, jewellery, etc

Question 12

How can income ad wealth be linked?

Answer 12

If one has more income, then they are able to buy more assets which will then generate them more wealth and may lead to greater rewards and income.

Question 13

What are the 5 causes for the differences in the distribution of income

Answer 13

gender, age, benefit reliance, wage differences and assets are distributed unevenly

Question 14

Explain how assets being distributed unevenly causes an uneven distribution of income?

Answer 14

If an individual does not have any land, capital, or shares in an enterprise, then they will not receive income in the form of rent, interests and profits.

Question 15

Explain how wage differences cause an uneven distribution of income?

Answer 15

Wage rates are based of supply and demand. Therefore those jobs that require a lot of skill and have a lot of demand for but there is little supply of labour, will have higher wage rates. Whereas other may be paid the national minimum wage rate.

Question 16

Explain how benefit reliance causes an uneven distribution of income?

Answer 16

State benefits are usually lower than wages and may be the only source of income for a household. e.g. where individuals are pensioners, unemployed or disabled.

Question 17

Explain how age causes an uneven distribution of income?

Answer 17

Both the young and old are likely to have a lower share of income. People under 25 have a lower level of national minimum wage and young workers have less experience and so are usually paid less. Older people may be retired, and the pension they receive is likely to be less than their previous wage.

Question 18

Explain how gender causes an uneven distribution of income?

Answer 18

In the UK the average income of women is less than that of men. Legally, they are supposed to be paid the same for the same work. However, a woman taking time out of work to look after families or gender bias are reasons for lower pay being given to women.

Question 19

What are the 4 reasons why wealth is distributed unevenly?

Answer 19

inheritance, savings, property, and enterprise

Question 20

How does inheritance cause an uneven distribution of wealth?

Answer 20

Some families may own more possessions e.g. property, which can be passed on to the next generations.

Question 21

How do savings cause an uneven distribution of wealth?

Answer 21

Some people with enough income may decide to save some of their income rather than spend it all. These savings receive interest and may increase their wealth over time

Question 22

How does property cause an uneven distribution of wealth?

Answer 22

People with enough money may decide to buy property. All types of property can generate income or increase in value

Question 23

How does enterprise cause an uneven distribution of wealth?

Answer 23

A successful business can be worth an increasing amount of money and its increasing value would be a form of wealth.

Question 24

What are the costs of inequality?

Answer 24

• poverty: people without jobs or gov benefits may be in absolute poverty and so cannot afford to buy the necessities to survive and have less than the minimum standard of living.
• housing: people on low incomes may not be able to afford to buy a house, or may have to live in poor quality housing.
• health: people on low incomes may not be able to afford some healthy foods or medicines, so they are likely to have health problems and a lower life expectancy.
• education: in countries with no state education, families on low income may not be able to afford education, which can lead to fewer skills, which results in a lower wage and continues the poverty cycle.
• social problems: the combo of poverty, poor housing, health and education may lead to unhappiness at the unfairness and social unrest in the country.
• lower economic growth: less-educated, unhealthy and unhappy workers are less productive, so there is less output in an economy.

Question 25

What are the benefits of inequality?

Answer 25

• incentive: some argue that the possibility of a higher income may motivate people to work harder, which may lead to greater productivity in an economy.
• Trickle-down effect: some argue that if some individuals of on higher incomes, then they may spend more in an economy or set up businesses, which may lead to more income for other people.