4.1.7.1 The distribution of income and wealth Flashcards
What is the difference between income and wealth?
Income: Flow of money (e.g., wages, benefits, dividends).
Wealth: Stock of assets (e.g., property, shares, savings).
Example: A doctor earns £80,000/year (income) but owns £500,000 in property (wealth).
List 4 factors affecting income distribution.
Education/skills: Higher qualifications → higher wages.
Occupational trends: Tech jobs pay more than manufacturing.
Globalisation: Outsourcing lowers wages for unskilled workers.
Government policy: Taxes/benefits redistribute income.
List 4 factors affecting wealth distribution.
Inheritance: Concentrates wealth in families.
Asset inflation: Rising house prices benefit owners.
Savings rates: Higher earners save/invest more.
Pension access: Unequal retirement savings.
Distinguish equality from equity.
Equality: Equal outcomes (e.g., everyone earns £30k).
Equity: Fairness based on needs (e.g., progressive taxes).
Example: Free school meals target low-income families (equity).
What does the Lorenz curve show?
Plots actual income distribution against perfect equality.
Further from 45° line → more inequality.
Diagram: Label axes (% population vs. % income), 45° line, and curve.
How is the Gini coefficient interpreted?
0 = perfect equality; 1 = perfect inequality.
UK (2023): ~0.35 (moderate inequality).
Limitation: Doesn’t show wealth distribution.
Describe UK income/wealth inequality trends.
Income: Top 10% earn 8× more than bottom 10%.
Wealth: Top 10% own 45% of total wealth (ONS 2023).
What are arguments for inequality?
Incentives: Rewards productivity/innovation.
Investment: Wealthy save → capital for growth.
Example: Entrepreneurs take risks for high returns.
What are arguments against inequality?
Poverty traps: Low mobility → wasted talent.
Social unrest: Political instability.
Market failure: Underconsumption by poor.
How is inequality a cause/consequence of market failure?
Cause: Monopoly power, discrimination.
Consequence: Poor education/health → lower productivity.
How might governments reduce inequality?
Progressive taxation: Higher earners pay more.
Wealth taxes: Inheritance tax reforms.
Education funding: Improve mobility.
Why is equity subjective?
Political views: Left (redistribute) vs. Right (meritocracy).
Example: Debate over ‘deserving’ vs. ‘undeserving’ poor.
Draw a Lorenz curve showing high inequality.
Label axes (0-100%).
Curve bows far from 45° line (e.g., bottom 40% own 10% income).
