3.3 Fair Distribution of Income

Question 1

What is meant by distribution of income?

Answer 1

How income is shared between individuals and households in a country.

Question 2

What are the five types of income and how are they earnt?

Answer 2

1. Wages: the reward for work.
2. Rent: the reward for use of land.
3. Interest: the reward for saving/lending.
4. Profit: the reward for enterprise.
5. State benefits: government transfers income by taxing some and paying benefits to others.

Question 3

What is income?

Answer 3

The flow of money over time.

Question 4

What is wealth? Give three examples.

Answer 4

The monetary value of all assets owned at a specific time. Eg: cars, savings and jewellery all count as wealth.

Question 5

What is the difference between gross and net income/pay?

Answer 5

Gross income is pay before tax, whereas net pay is after tax and plus benefits.

Question 6

How are wealth and income linked?

Answer 6

More income enables individuals to buy more assets, which can generate income. Eg: someone buys a house and rents it out.

Question 7

What are the three main causes of differences in income?

Answer 7

1. Wage rates
2. Gender discrimination
3. Age

Question 8

How can wage rates create differences in income?

Answer 8

As wage rates are based on demand and supply for jobs, wages can vary. Jobs with low supply and high demand such as surgeons pay more than jobs with high supply and lower demand such as waitresses.

Question 9

How does gender discrimination create differences in income?

Answer 9

Due to gender bias and taking time off work for family, women are paid less than men for the same work.

Question 10

How can age cause differences in income?

Answer 10

People under 25 are paid a lower minimum wage than middle-aged workers as they have less experience. The elderly also receive pensions, most likely less than their previous pay.

Question 11

What are the three main causes for unequal distribution of wealth?

Answer 11

1. Inheritance
2. Income
3. Enterprise

Question 12

How does inheritance cause differences in wealth?

Answer 12

Some families may own more posessions than others, which can be passed on to the next generation.

Question 13

How does income cause wealth to be distributed unevenly?

Answer 13

Having a higher incomes enables people to save more and buy more properties. This increases their wealth and can generate more income. People with lower incomes may not have these options.

Question 14

How can enterprise cause differences in wealth?

Answer 14

Entrepeneurs may invest income or borrowed money to set up a business. If successful, the business would increase in worth and wealth.

Question 15

What are three costs of income and wealth inequality?

Answer 15

• Low income means inability to afford good housing, healthcare and education
• People may live in poverty which lowers their standard of living
• Less educated and happy workers are not as productive which decreases economic growth

Question 16

What are two benefits of income and wealth inequality?

Answer 16

• Higher incomes act as incentive to motivate people to work harder, leading to greater productivity and output
• Trickle-down effect: wealthy spend money in the economy or set up businesses which may lead to income for others