4.2.2 Flashcards
What are two types of Inequality?
Wealth and Income
What is wealth?
The value of all assets that someone owns.
When does wealth equality occur?
When everyone has the same value of assets.
What is income?
The flow of money received per year.
What is perfect income equality?
When everyone receives the exact same amount of income.
What is Income Inequality?
Income inequality refers to the unequal distribution of income to households.
What are two methods to measure income inequality?
Lorenz Curve and Gini Co efficient
What are the two axis called on the Lorenz curve?
Cumulative percentage of income - Y
Cumulative Percentage of Population - X
Where would you find Perfect Income equality on Lorenz Curve?
Perfect Income Equality is 45 degree line
What is the Lorenz Curve?
Distrbution of income across countries population.
What must you remember when drawing the Lorenz Curve?
You must plot the Lorenz Curve and Perfect equality line.
What does it mean when the Lorenz curve is closer to the equality line?
More Equality
What is the Gini Coefficent?
Measures the income inequality of a country.
What is the formula for Gini Co efficient?
A/A+B
What is A and B in the Gini cofficent?
On the lorenz curve the A is the area between the Equality Line and the Lorenz Curve.
B is the part Below the Lorenz Curve and the Prefect Inequality straight vertical line.
The Gini Coefficient is a value between 0-1. What does it mean the higher the number?
The higher the number the more inequality, while the lower the number the more equality.
What are 4 Factors influencing Inequality?
Minimum wage
Social Benefits
Taxes
Education
What is Progressive Income Tax?
Tax rate increases the more you earn.
What is Capitilism?
An economic system based on private ownership of production methods, with hope to generate a profit.
Why does Capitalism Create Inequality?
Business owners decide their own salary, meaning they can pay themselves high wages compared to works (Business owners are profit driven)
Why does Capitalism create wealth Inequality?
Assets are able to generate more income, while poor people do not have assets so they can not generate as much money as richer people.
Why Is Inequality Good?
Inequality incentivise people to obtain higher paying jobs.
Productivity increases
Why Is Inequality Bad?
Capitalism does not allow people to have savings, due to workers working long hours and having low pay.
Low incentive to spend with low Consumer Confidence -> Aggregate demand Decrease
Why may the Trickle Down Effect not work?
Rich Capitalists may not spend their money.
This will cause a withdrawal from the circular flow of income
Causing there to be no trickle down affect through the lower working positions
This is means no Wealth Improvement
Eg - If rich do not buy a supercar, the production line jobs will not experience income being distributed as there is no need for supply when there is no demand.
Why is inequality bad
Standard of living is bad
Government revenue is spent if welfare
