3.3 Fair Distribution Of Income

Question 1

What is the evaluation of causes of income inequality ?

Answer 1

• difference in wages - low skilled jobs have high supply, low demand, leads to lower wages:
  Eval: if low skilled manufacturing jobs are moved abroad there will be more significant decrease in demand
• unearned income from wealth wealth earned on assets e.g interest on savings
  Eval: depends on the distribution of wealth
• benefits < average wages
  Eval: depends on the state of the economy - a recession leads to increase unemployment

Question 2

What is the evaluation of causes of wealth inequality ?

Answer 2

• high incomes may lead to increased savings as they don’t need to spend most of their income
  Eval: depends on income inequality
• poorer households find it difficult to purchase property, due to them not being able to afford deposit
  Eval: depends on how fast property prices are rising
• wealthy families pass down assets this leads to the inequality continuing through generations
  Eval: depends on the size of family

Question 3

What are the consequences of wealth and income inequality ?

Answer 3

• inequality of opportunity - poorest live in areas with lower standard of education or can’t afford education
• poor housing - since people on low incomes can’t afford to buy a house and are forced to live in poor quality housing, leads to decreases standard of living for workers and they are less productive
• poor health - people on lower incomes may not be able to afford healthcare if there is no state health systems, leads to decrease in supply of labour, increase in government spending on benefits

Question 4

What is the evaluation of wealth and income inequality ?

Answer 4

Depends on:
- size of the inequality
- economic growth as this leads to an increase in real wages, for poorer households, as there is a larger demand for labour
- saftey nets like benefit payments, free healthcare and free housing, protect people from poverty
- policies like minimum wage and taxation on higher incomes, however may lead to high income households moving abroad

Question 5

What is the distribution of income ?

Answer 5

Distribution of income, this describes how income is divided between individuals and households in a country

Question 6

What is income ?

Answer 6

income is a flow of money over time, often as a reward for use of a factor of production

Question 7

What is wealth ?

Answer 7

wealth is the monetary value of all assets owned by an individual person, firm or country at a specific time

Question 8

What are the different types of income ?

Answer 8

• wages the reward for work, high skilled jobs, like surgeons, a limited supply and large demand leads to high wages
• rent the reward for a use of land for a period of time
• interest is the reward for saving or lending
• profit is the reward for enterprise
• state benefits is not a reward for use of a factor of production

Question 9

What is the difference between wealth and income ?

Answer 9

income is a flow of money over time, but wealth is the monetary value of assets owned at a specific time
Basically, income is a flow of money, wealth is a stock of money