7. The Distribution of income and wealth: poverty and inequality

Question 1

What is distribution of income?

Answer 1

How income is divided between rich and poor, or between different groups in society, e.g. on a regional, age or gender basis

Question 2

What is distribution of wealth?

Answer 2

How wealth is divided between rich and poor, or between different groups in society, e.g. on a regional, age or gender basis

Question 3

What is an income?

Answer 3

Personal or houshold income is the flow of money a person or household receives in a particular time period

Question 4

What is wealth?

Answer 4

Personal wealth is the stock of everything that a person or household own at a particular point in time which has value

Question 5

What is equality?

Answer 5

When everyone is treated exactly the same. A completely equal distribution of income means that everybody has the same income

Question 6

What is equity?

Answer 6

When everyone is treated fairly

Question 7

What are the four factors of production?

Answer 7

Land, labour, capital and entrepreneurs

Question 8

What is a Lorenz curve?

Answer 8

A graph on which the cumulative percentage of total national income or wealth is plotted against the cumulative percentage of population (ranked in increasing size of share). The extent to which the curve dips below a straight diagonal line indicates the degree of inequality of distribution

Question 9

What is ‘Gini coefficient?

Answer 9

It measures the extent to which the distribution of income or wealth among individuals or households within an economy deviates from a perfect equal distribution

Question 10

What is progressive taxation?

Answer 10

A tax is progressive when, as income rises, a greater proportion of income is paid in taxation. The term can be applied to a particular tax such as income tax or to taxation in general

Question 11

Factors that influence the distribution of income?

Answer 11

• The shares of national income going to different factors of production
• The shares of earned and unearned income
• The widening of earnings differences between workers at the top and bottom of the play league table
• The effect of globalisation and the international migration of workers

Question 12

Factors that influence the distribution of wealth?

Answer 12

• The ability to benefit from capital gains
• Ownership of private pension assets
• The roles of inheritance
• Gifts and luck
• The different effects of the wealth and income taxation

Question 13

What is poverty?

Answer 13

The state of being extremely poor and not having enough money or income to meet basic needs

Question 14

What is absolute poverty?

Answer 14

A condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information. It depends not only on income but also on access to services

Question 15

What is relative poverty?

Answer 15

Occurs when income is below a specified proportion of average income, e.g. below 60% of median income

Question 16

What are some causes of poverty?

Answer 16

• Both by a low real national income relative to a country’s total population size and by inequalities in the distributions of income and wealth
• Old age
• Unemployment

Question 17

Out of absolute and relative poverty, which is more significant?

Answer 17

Relative poverty is more significant than absolute poverty for most of the poor in the UK, except the destitute

Question 18

What does ‘The Child Poverty Action Group’ (CPAG) believe in?

Answer 18

That poverty damages childhoods, life chances, and eventually all in society. It leads to health and education deprivation and to the breakdown of communities

Question 19

What is marginal tax rate?

Answer 19

The tax rate levied on the last pound of income received. The term can be applied solely to income taxes or to all the taxes that a person or business pays

Question 20

What is ‘Fiscal drag’?

Answer 20

Occurs in a progressive income tax system when the government fails to raise tax thresholds (or personal tax allowances) to keep pace with inflation

Question 21

What does ‘fiscal drag’ contribute to?

Answer 21

The existence of a poverty trap or earnings trap, and also to an unemployment trap

Question 22

What does the poverty trap (or earnings trap do)?

Answer 22

Affects people in employment on low rates of pay, rather than the unemployed who are unwaged

Question 23

What does the unemployment trap do?

Answer 23

Contains unwaged social security claimants who choose unemployment

Question 24

What could government intervention in trying to reduce poverty result in?

Answer 24

Government failures that make matters worse