4.2 Poverty and Inequality Flashcards
Impersonal markets
Markets where transactions occur independently of personal relationships, relying on objective factors instead
What’s personal distribution of income?
The overall distribution of the total income of all the individuals
Focuses on how this income is spread between them
What are the causes of inequality of personal distribution of income?
Varied income
Non workers
Physical and financial wealth
- easier to accumulate wealth with these
Household composition
- large families have less income per person
Government policy
- taxes and benefits change incomes
Competition of markets
- imperfectly competitive vs perfect distributions
What are the causes of wealth inequality?
Property wealth
Physical wealth
- physical valuables other than property
Financial wealth
- monetary valuables
Private pension wealth
Income levels
Wealth levels
- increase more with them higher
Inheritance
Chance
What’s the Lorenz curve?
A curve measuring how much the cumulative proportion of income increases when the cumulative proportion of households increase
Creates a curve due to inequality
What’s the perfect equality line?
In a world with no inequality, where everyone earns the same
Curve is perfectly straight at 45°
What’s the perfect inequality line?
In a world where the richest household earned 100% of income
Vertical line at 100%
What’s the Gini Coefficient?
Area A/(Area A +Area B)
Gives a coefficient measuring the inequality of an economy
The higher the coefficient, the greater inequality
What’s absolute poverty?
When individuals can’t consume sufficient necessities to maintain life
- The income on this varies with countries
What’s relative poverty?
The relatively poor individuals at the bottom end of income scale
- always present in society
What are the 2 measures of relative poverty?
Finding median of income then x0.60 (UK and EU)
- multiplier varies
Consider necessities people have to buy to not be considered poor
What are the causes of poverty?
Unemployment
Lack of human capital (education, training)
Health problems
Being dependant on others
Varied countries and regions
What causes absolute poverty rates to change?
Falls when GDP increases
- but not a guarantee
How well the state reach people who can’t work etc
- pensions
- free healthcare
- social housing
What causes absolute relative rates to change?
Wages may not increase or alter
Cuts in benefits
Tax raises
What is equity?
Fairness.
You get what is needed for you, not get the same thing
What’s horizontal equity?
Identical treatment of identical solutions
Individuals with similar circumstances or incomes should be treated equally
What’s vertical equity?
Different treatment for different situations
Why may Govs want to intervene to change distribution of wealth and income? 4 reasons
- Absolute poverty may exist
- Relative poverty may be too great
- Horizontal equity may not exist
- Current distribution may conflict economic efficiency
What’s a progressive tax?
Tax rate ( % of tax of income) increases as individuals income rises
What’s a regressive tax?
Tax rate decreases as individuals income rises
like indirect taxes
What’s a proportional tax?
Tax rates are a constant, no matter the individuals wage
How can the gov use taxes to reduce income and wealth inequality?
Increase progressive taxes
Decrease regressive taxes
Inheritance tax
How can gov expenditure decrease income and wealth inequality?
Monetary benefits
Social security and National insurance benefits
Act more precisely
- spend money on housing for elderly
- help children benefits
Gov activity of provision of goods and services
What are the 9 ways the gov can intervene to reduce income and wealth inequality?
Gov Expenditure
Taxation
Raising min wage
Max wages
Benefits
Equal pay legalisation
Passing trade union-friendly legalisation
Price controls on essentials
Private sector goods / services can be provided
What’s trickle down economics?
The idea that policies benefiting the wealthy will eventually benefit the wider economy
- as the invest more, create jobs, spend more
- economic growth which ‘trickles down’ to lower income groups
How does redistributing income increase total utility?
Law of diminishing marginal returns suggests an extra pound spent by the rich is less utilises them vs the poor
