4.2

Question 1

define income?

Answer 1

income is a flow of income - money received, especially on a regular basis, for work or through investments

Question 2

define wealth?

Answer 2

wealth is a stock of assets

Question 3

define income inequality?

Answer 3

how unevenly income is distributed throughout a population

Question 4

define wealth inequality?

Answer 4

The degree to which wealth is distributed unequally in an economy or population

Question 5

what is likely to be more unequal wealth or income?

Answer 5

Wealth is likely to be more unequally distributed than income because assets that make up wealth can be accumulated over time. People who are wealthy now can generate an income from those assets and as long as income exceeds expenditure, they are able to build up a stock of assets. This accumulation of wealth can occur over successive generations through inheritance.

Question 6

how does wealth lead to income inequality?

Answer 6

as wealth brings in a source of income, so therefore the more wealth the greater the income

Question 7

what is the Lorenz curve?

Answer 7

This is a graphical representation of equality, it shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have.

Question 8

what would a perfect even society look like on a Lorenz curve?

Answer 8

A perfectly equal society would have a straight line from corner to corner

Question 9

what does the degree of the bend show about the inequality of a society?

Answer 9

the degree of the bend away from that straight line indicates the degree of inequality.

Question 10

what is the Gini coefficient?

Answer 10

a quantitive measure of inequality, it is the ratio of the area between curves to area underneath perfect equality curve. the larger the coefficient the more uneven

Question 11

how do wages create inequality in wealth and income distribution?

Answer 11

some people are more productive then others or work longer hours so they will earn higher wages which will increase inequality in income, also higher levels of income will allow them to purchase more assets therefore creating wealth inequality and income inequality. those who have higher incomes will be able to spend on wealth rather than spend most their money on everyday items such as food

Question 12

how do wealth levels create inequality?

Answer 12

having assets such as stocks and propertys will allow you to gain additional income through rent and dividends or capital gains

Question 13

how can chance increase inequality?

Answer 13

those who purchase a house in london at the right time will allow the purchaser to benefit from a capital gain.

Question 14

where are the developing countries mainly located?

Answer 14

sub saharan africa, latin america, south asia and south east asia

Question 15

name a measure of development?

Answer 15

GNI per capita purchasing power parity

Question 16

why use purchasing power parity?

Answer 16

PPP takes into account the fact that prices vary in different country.

Question 17

what is a flaw of GNI per capita

Answer 17

1) it is an average so does not show the distribution of income among society.
2) the informal sector makes up a large amount of the developing countries trade which may not be recorded in GNI

Question 18

when the Gini coefficient is close to 1, what does it mean?

Answer 18

it means the society is high rates of inequality

Question 19

when the gini coefficent is close to 0 what does it mean?

Answer 19

it means the society is has low rates of inequality

Question 20

how can you solve the issue of measuring income per household when households vary in size?

Answer 20

you can use an equivalence scale where different households have different weights. for example a couple=1 and a couple with 2 kids =1.18 therefore a couple with two kids who earn income of 40,000 have an equivalent income as a couple earning 40,000/1.18= 33,898

Question 21

define absolute poverty?

Answer 21

you are in absolute poverty when your income is too low to cover your basic needs

Question 22

what is the headcount ratio?

Answer 22

the percentage of a population living below absolute poverty line

Question 23

what is the international poverty line?

Answer 23

an agreed measure that defines absolute poverty at PPP$1.90 in 2015

Question 24

define relative poverty?

Answer 24

your income is insufficient to participate in the normal social life of the country

Question 25

how do you calculate the relative poverty line

Answer 25

it is at 60% of the median real household disposable income

Question 26

define persistent poverty

Answer 26

persistent poverty is when you are in relative poverty for at least two of the three preceding years

Question 27

how does UK poverty compare to EU poverty?

Answer 27

around the same rate of relative poverty however a much lower persistent poverty rate

Question 28

what is the flaw of using percentage of people under the poverty line?

Answer 28

it doesn’t tell you how far they are below the poverty line so wouldn’t be able to see how much below countries are below compared to each other

Question 29

what is the income gap?

Answer 29

the gap between income and the poverty line

Question 30

how has inequality varied over time in uk?

Answer 30

there was an increase in inequality in the uk during the 1980s however since then there has been no noticeable trend

Question 31

what are the 6 main causes of inequality in UK?

Answer 31

1) wealth inequality 2)rising house prices 3)wage gap between genders 4)changes in the structure of employment 5)decline in power of trade unions 6) demographic change ( ageing population)

Question 32

how does wealth inequality cause more inequality?

Answer 32

most of wealth is inherited, the inequality in income will increase as assets such as stocks will produce a flow of income for the wealthy

Question 33

how does the rising house prices cause inequality?

Answer 33

people who own houses will be able to benefit from a rising value of their asset whereas those who rent will not creating inequality between those who rent and own property

Question 34

how does the wage gap increase inequality?

Answer 34

in the uk a women earns 16.8% lower than men, the gap is larger between educated women and educated men but lower between less educated people.

Question 35

how does structural change cause inequality

Answer 35

if shifts occur away from unskilled labour to skilled, then those workers who havent got the ability to work these high skilled jobs will suffer so greater inequality

Question 36

how does the decline in the power of trade unions increase inequality?

Answer 36

the decrease in power of trade unions means that workers have less employment protection

Question 37

how does demographic change increase inequality?

Answer 37

the ageing population and decrease in the birth rate means that their is an aging workforce. the majority of pensions are being funded by the people currently working so as more people retire there will be more strain on the funding stream

Question 38

what ways can a government intervene to decrease inequality and poverty?

Answer 38

benefits and taxes

Question 39

how do benefits reduce inequality and poverty?

Answer 39

the cash benefits such as income support protect those whose income is low and benefits in kind provide healthcare and education. they contribute to 3/5 of the growth in income for the lowest quintile

Question 40

how can direct taxation reduce inequality?

Answer 40

direct taxes such as income tax are progressive so as you earn more you pay a higher rate of tax. however the council tax is a regressive direct tax as it takes up a higher percentage of lower earners income

Question 41

why does an indirect tax increase inequality?

Answer 41

alcohol and cigarette duties are an example of indirect tax. these are regressive as it is the poorer people who consume the most of these goods. if demand is inelastic then the burden of the tax is put on the consumer

Question 42

how does the balance of taxation affect inequality?

Answer 42

a shift from direct to indirect taxes will increase inequality, however it will incentivize people to work more as a less income will be lossed to taxes

Question 43

why is full equality not desired?

Answer 43

it is not desired as if everyone earned the same amount then there will be no incentive to work harder

Question 44

what does the kuznat curve show?

Answer 44

this shows that as a countries development increases the inequality will at first increase then decrease, inverted U shape.

Question 45

what is the kuznats hypothesis?

Answer 45

The Kuznets hypothesis says that as society develops and moves from agriculture
to industry, inequality increases as the wages of industrial workers rises faster than
farmers. Then, wealth is redistributed through taxation and government spending and
so inequality falls

Question 46

what was pikettys theory?

Answer 46

the rate of return on capital is greater than the rate of economic growth so the inherited wealth is growing faster than earned wealth , therefore the rich get richer and inequality increases.

Question 47

what is the significance of capitalism on inequality?

Answer 47

A capitalist economy leads to income inequality because of wage differentials. Wages vary as they are based on demand and supply, and demand and supply vary for different jobs.