3.3 Fair distribution of income

Question 1

Wealth definition

Answer 1

The market value of the total stock of assets owned by an individual, household, group or country at a specific point of time

Question 2

Income definition

Answer 2

All payments received by an individual or household over time

Question 3

Different factor earnings (payments)

Answer 3

Land - rent income
Enterprise - profit
Capital - interest (income payment for enterprise)

Question 4

Transfers definition

Answer 4

Transfers are payments from one economic agent to another economic agent due to ‘giving’, they aren’t a factor payment

Question 5

Difference between income and wealth

Answer 5

Income is a flow and wealth is a stock

Question 6

gross income definition

Answer 6

Income from all sources before taxes are paid or transfer payments are added

Question 7

Policies to reduce income inequality

Answer 7

Increased education and training
Increased tax rates for high income earners
Increased benefits
Increased minimum wage
Increased tax free threshold

Question 8

How does increased education and training solve income inequality + evaluation

Answer 8

Workers become more skilled, increases human capital, increases occupational mobility which means less structural unemployment and higher wage.
Depends on how well targeted it is
Opportunity cost
Time lags

Question 9

How does increased tax rates for high income earners solve income inequality + evaluation

Answer 9

Reduces disposable income of top earners to reduce gap between high and low income earners.
Decreased incentive to work
Brain drain
Better if redistributed to low income workers

Question 10

How does increased minimum wage solve income inequality + evaluation

Answer 10

Increases incomes for lowest paid workers to reduce gap between high and low income earners.

Decreases unemployment trap - benefits greater than a proportion of previous income.
Increased unemployment (excess supply at minimum wage)
Doesn’t improve incomes for lowest earners who are on benefits

Question 11

How does increased tax free threshold solve income inequality + evaluation

Answer 11

Increases disposable incomes for lowest paid workers so reduces poverty.

Reduces unemployment trap - benefits greater than a previous proportion of income.
Affects all taxpayers so will also increase disposable income of high income earners.
Expensive
Doesn’t improve incomes for those on benefits.

Question 12

Causes of income inequality

Answer 12

Differences in wages
Benefits
Age
Income earned from wealth

Question 13

Causes of wealth inequality

Answer 13

Inheritance
Savings
Property ownership
Enterprise