Chapter 7

Question 1

What is the 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 the distribution of wealth

Answer 2

How wealth is divided between poor and rich or between different groups in society eg

Question 3

What is income

Answer 3

Personal or household 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 owns at a particular point in time which has value

Question 5

What is equality

Answer 5

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

Question 6

What is equity

Answer 6

Everyone is treated fairly

Question 7

What is the Lorenz curve

Answer 7

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

Question 8

What is the gini coefficient

Answer 8

Measures the extent to which the distribution of income or wealth among individuals or households within an economy deviates from a perfectly equal distribution

Question 9

What is progressive taxation.

Answer 9

A tax is progressive when as income rises a greater proportion of income is paid in taxation.

Question 10

What is poverty

Answer 10

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

Question 11

What is absolute poverty

Answer 11

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

Question 12

What is relative poverty

Answer 12

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

Question 13

What is marginal tax rate

Answer 13

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 14

What factors influence the distribution of income?

Answer 14

Factors of production
the distinction between earned and unearned income
wage and salary differentials
globalisation and international migration of workers

Question 15

What factors influence the distribution of wealth?

Answer 15

• the ability to benefit from capital gains
• private pension assets
• inheritance, gifts and luck
• wealth taxation versus taxation of income

Question 16

What are some causes of poverty?

Answer 16

Old age and poverty
unemployment and poverty
low wages and poverty

Question 17

What are the effects of poverty?

Answer 17

educational deprivation
health deprivation
the effect of poverty on communities

Question 18

What are some government policies which affect poverty and the distribution of income and wealth?

Answer 18

• redistributive policies can make DoI and DoW more equal and reduce relative poverty, however, many would argue is inequitable and would reduce the incentive to work hard and be entrepreneurial
• faster economic growth as a route out of poverty, inequalities are necessary if fast growth is to be achieved