4.2.2: Inequality

Question 1

What is the difference between income and wealth?

Answer 1

• Income is a flow of earnings, wealth is a stock of asset.

Question 2

What is income inequality?

Answer 2

• The extent to which income is distributed in an uneven manner.

Question 3

What are the measurements of income inequality?

Answer 3

• The Lorenz Curve
• The Gini Coefficient

Question 4

What are the causes of wealth and income inequality?

Answer 4

• Wages
• Wealth Levels
• Age

Question 5

How do wages cause wealth and income inequality?

Answer 5

• Due to higher educational achievements, the number hours of work or the demand for skills, some workers make more than others
• The higher the level of income, the more one can save and therefore the more wealth they can build.
• High income earners will be more likely to able to build a stock of assets

Question 6

How does age cause wealth and income inequality?

Answer 6

• Working adults at the peak of their career will earn a higher income than those who have just started.
• Those who are older will have had a chance to build their assets
• EV; however, some of this stock may have been used up to pay for retirement.

Question 7

How do wealth levels cause wealth and income inequality?

Answer 7

• High levels of wealth mean people can earn rent and interest on their assets and so therefore see increased income
• People with high levels of wealth are more likely to be able to build up larger wealth, as they can undertake risky investment, which could give them a higher rate of return.

Question 8

What are some causes of wealth and income inequality between countries?

Answer 8

• Political/ Societal Issues eg war, drought, famine and natural disasters

Question 9

What are some of the impacts of economic change and development?

Answer 9

• Kuznets Hypothesis: States as society develops and moves from agriculture to industry, inequality increases as wages of industrial workers rise faster than farmers. Then wealth is redistributed through taxation and gov spending causing inequality to fall.
• EV: However, Piketty argues that inequality rises as the country develops s the rate of return on capital grows, so the rich get richer and inquality increases.

Question 10

How does capitalism impact wage and income inequality?

Answer 10

• Wage differentials lead to income inequality
• Individuals also own resources causing wealth to differ based on the assets they own.