aos2 Flashcards
income
total incomes earned by those who have contributed to the production of goods and services produced
production
total value of goods and services produced in an economy
expenditure
total amount of spending undertaken on goods and services produced
household income
all current receipts received by the household or its members which are available or intended to support consumption
factor income
arises due to the result of productive activity
it is paid to the factors of production
it is included in the national income estimates
e.g rent/wages/profit
transfer income
doesn’t arise due to productive activity and isn’t paid to factors or production and isn’t included in national income estimates
e.g gifts/subsidies/scholarships
the difference between factor and transfer income
whether or not income received is for rendering a productive service
private/market income
received in market place primarily because individual contributed to the production of goods or services
gross income
received in the market place due to contributing to production + direct cash benefits from the government (pensions/childcare)
disposable income
gross income minus direct taxes (personal income tax)
social wage income
disposable income + indirect government benefits in the form of goods and services (education/healthcare)
wealth
value of assets owned by individuals that are handed down through generations
relationship between income and wealth
income increases leading to an increase in money left over leading to an increase in saving and investment which will grow overtime leading to an increase in wealth. as the cycle continues the wealth gap grows
nominal income
income received by an individual measured overtime. doesnt take into account its purchasing power
real income
equal to nominal income after accounting for the impact of changes in inflation. Guide to its purchasing power
inflation greater than rise in nominal leads to a fall in real
inflation less than rise in nominal leads to rise in real
inflation equal to rise in nominal leads to no change in real
equity
sufficient income to purchase and access basic goods and services and enjoy reasonable living standards at a level deemed acceptable to society.
fairness
equality
everyone has equal access to goods and services and income
absolute poverty
people living in situation where they have insufficient income to purchase basic goods and services (food/water/shelter)
relative poverty
household has low income compared with what is needed to maintain agreed reasonable living standards
henderson poverty line
fixed proportion of average income per average household (2 adults 2 children). government uses line to determine changes needed to welfare benefits to ensure households have a ‘dignified standard of living’
effects of poverty on material living standards
impact health and education of those in poverty
households in poverty are less likely to financial means to support healthy diets visit medical professionals and pay for medicine
effects of poverty on non-material living standards
poor physical and mental health
poor outcomes limit abilities for change in the future
increase in social unrest which can lead to anti-social behaviour such as crime
develop class system
measuring income inequality
ABS collect and analyse: gross household income, household disposable income and equivalised household income where the information will be ranked and placed in quintiles
final income
social wage minus production or indirect taxes
discretionary income
income available for consumption on goods and services following payment of unavoidable expenses (rent)
equivalised household income
disposable income of a household adjusted to take into account the size and consumption of the household
lorenz curve
representation of degree of equality in distribution of wealth or income.
away from straight line means greater inequality
gini co-efficient
between 0 and 1. indicator of the degree of inequality in the distribution of wealth. 0.3-0.4 0= equality 1= inequality
quality of human capital causing income inequality and poverty
skills talents and ability differences in workforce. high wage (remuneration) is given when supply of skill is low relative to demand
unemployment causing income inequality and poverty
people actively seeking jobs but aren’t in paid employment.
frictional unemployment
unemployed because moving from one job to another
structural unemployment
skills available aren’t in demand anymore
long term unemployment
people unemployed for more than a year
luck causing income inequality and poverty
some wealthy households gain fortune through factors such as lottery
inheritance causing income inequality and poverty
most wealthy households inherited portion of wealth which can be invested and generate income
sovereign indebtedness causing income inequality and poverty
build up of debt incurred by governments when government spending is greater than revenue leading to a budget deficit that requires borrowing and cut spending relative to tax slowing economic activity because a reduction in injunctions leading to unemployment and increase poverty
equity in the distribution of income requires
people having sufficient income to buy goods and services
people never experience absolute poverty
huge inequalities in income are avoided
social costs of inequality
helplessness and despair mental health problems social unrest and anti-social behaviour 'class system' conspicuous consumption inequality of opportunity
economic costs of inequality
government and taxpayer costs to support those who need income
short term costs to growth
decrease AD
social cost of equity
less people motivated to create and be entrepreneur
less people want to study lots to become doctors/lawyers
less people persue goal of increase income and wealth
economic cost of equity
quality of nations capital is low
decrease levels of labour and productivity, increasing cost of production, increasing inflation, leading to a depreciation in competitiveness, decrease demand for exports, decreasing AD, no economic growth
increase unemployment
regressive tax
applied uniformly, taking a larger % from low income earners compared to high income earners (GST)
market failure occurring due to weak competition
monopolies and oligopolies increase power to set prices, decrease innovation, decrease efficiency, decrease production, increase prices, undermine society’s general wellbeing. no incentive to be efficient because high power means can still make profit
market failure occurring due to asymmetric information
lack information and knowledge leads to poor decisions, wasted resources, inefficiency
market failure occurring due to negative externalities
ignore costs of consumption and production on third party to gain profit leads to overproduction and lowering social wellbeing
market failure occurring due to income inequality
unregulated market operations lead to severe income inequality, decreasing efficiency, and low general wellbeing.
people with sufficient income participate in market and influence resource allocation therefore necessities of life needed by all are underproduced
