7. Poverty And Inequality

Question 1

What is the distribution of income?

Answer 1

How income is divided between rich and poor. Can be divided into different groups in society eg age

Question 2

What is the distribution of wealth?

Answer 2

How wealth is divided between rich and poor or between different groups in society . Can be divided into different groups in society such as gender

Question 3

What is income?

Answer 3

The flow of money a person receives in a particular time period

Question 4

What is wealth?

Answer 4

Personal wealth is the stock of everything that a person owns at a particular time which has value

Question 5

How can income and wealth link?

Answer 5

The part of the income that you save adds to wealth.
The wealthier you are, the more investment income you are likely to earn which adds to income,

Question 6

What virtuous circle do the rich benefit from?

Answer 6

Wealth increases income , which allows the wealthy to save and saving adds to wealth

Question 7

What vicious circle do the poor suffer from?

Answer 7

Low income means the poor have to borrow which adds to personal debt , income is then spent on debt repayment, consumption falls, and wealth that they own disappears

Question 8

How income was shared in the UK in 2018?

Answer 8

The top fifth of UK households received 40% of total household income but the bottom fifth received 8%

Question 9

How can the distribution of income between the factors of production influence the distribution of income?

Answer 9

• Land: Landlords which own large land holdings such as large country estates and parts of London receive income in the form of rent which puts them in the top quintile for income.
• Labour: Share of national income to labour has fallen. This trend is driven by rapid progress in technology. Wages have not been rising as fast as productivity
• Capital: owners of capital receive income from dividends
• Enterprise: Entrepreneurial profits have grown at the expense of wages and salaries

Question 10

What does earned income include?

Answer 10

Wages, salaries and other forms of employee compensation

Question 11

What does unearned income include ?

Answer 11

Derived from sources other than employment such as interest and dividends

Question 12

What do the difference in unearned income?

Answer 12

Inequalities in the distribution of wealth

Question 13

Why has the difference between wage and salaries widened?

Answer 13

The difference in labour productivity which determines the relative position of the demand curve. The productivity of an airline pilot is significantly higher than that of an aircraft cleaner which makes the demand for pilots less wage elastic

Question 14

How has globalisation and the international migration widened the difference between wage and salary?

Answer 14

In the UK, low paid workers are in competition with incoming migrants from poorer countries and workers employed in developing countries in which UK employers have outsourced jobs

Question 15

How has international competition led to falling wages in UK labour markets?

Answer 15

UK workers are competing for jobs against similar workers in other workers which offer lower wage rates. For example, Call centres in India

Question 16

What percent of the nations wealth does the 1% own?

Answer 16

14%

Question 17

What percent of adults are in no or negative wealth?

Answer 17

15%

Question 18

How can the ability to benefit from capital gains affect the distribution of wealth?

Answer 18

The already wealthy own the most expensive houses often owning more than one house and are the main owner of shares. The less wealthy often rent rather than own houses and seldom own shares

Question 19

How can private pensions affect the distribution of wealth?

Answer 19

Until recently private pension schemes were not offered to low paid workers and neither did low pay workers contribute to private pensions . This means that most low paid workers expect their pension to come from the state which is little more than poverty income

Question 20

How does inheritance affect the distribution of wealth ?

Answer 20

The luck of people being born into wealthy families with large stock in shares and land which means that they don’t have to exercise entrepreneurial skill.

Question 21

How does the way wealth is taxed affect its distribution?

Answer 21

Wealth is lightly taxed and there are many loopholes in which tax can be avoided. The wealthy can also afford accountants and financial advisers who can minimise their tax which is how the wealth get wealthier