4.1.7 — Distribution Of Income And Wealth Flashcards
Define wealth
Defined as a stock of assets, such as houses, shares, land, cars etc
What is wealth inequality?
The unequal distribution of these assets
What is income? And what is said to occur across a nation if income is unevenly distributed
Money received on a regular basis, i.e it could be from a job, welfare payments, interests or dividends. When income is unevenly distributed across a nation, income inequality is said to exist
What type of graphs are used to demonstrate inequality?
Lorenz curve or Kuznetz curve
(Gini coefficient)
What does the Lorenz curve measure?
It measures the distribution of income and wealth in a country. The line of perfect equality shows the distribution of income when the richest x% of the population owns x% of the cumulative income
What does the Lorenz curve show?
It shows the actual distribution of income and wealth
How do you work out the gini coefficient?
A
————
A+B
What is equality?
It refers to the equal distribution of wealth and income in society so that everyone has the same income
It refers to fairness (could be subjective)
Bullet point some causes of income and wealth inequality within and between countries
- inequality in wages
I.e more part time jobs have been available rather than full time jobs which limits how much they earn - welfare payments and taxes
Those on benefits see a smaller real increase in their income compared to those in jobs - unemployment
This can cause relative poverty - changes to the UK tax system
UK has switched towards indirect taxes which tend to be more regressive - inequality between countries
Some counties held back by oppression, wars etc
What does the kuznets hypothesis state? (3 stages of the curve)
Stage 1:
That as a society moves from agriculture to industry (develops), inequality within society increases since the wage of industrial workers rises faster than farmers
Stage 2:
Then wealth is redistributed through Gov transfers and education. Once economies develop inequality reduces
Stage 3:
Piketty discredited this theory in 2014 by arguing that capitalism inevitably leads to continued inequality (rich get richer)
What are some likely benefits and costs of more equal and unequal distributions?
Benefits:
- Inequality motivates workers, which encourages them to learn new skills and work hard
- there can be income redistribution and wage equality via Gov intervention; I.e inheritance tax
Costs:
- monopolies can exploit consumers with higher prices and exploit their consumers
- inequality could discourage and demotivate those on lower incomes from participating in society
Define absolute poverty
Living below subsistence, meaning that the person is unable to meet their basic needs of food, clean water, sanitation, health etc
(People living on less than $1.25 a day)
Define relative poverty
Measured by comparison to the average in the country — in the UK those with below 60% of the median income are considered to be in relative poverty
Bullet point some causes of poverty
- inequality in wages or unemployment
- welfare payments
- taxes
- disease, malnutrition and health issues
- wars and conflict
- corruption and political oppression
- natural disasters
Bullet point some of the impacts of poverty
- health
- society
- poor sanitation
- education
- economy
