Distribution of income and wealth Flashcards
What is absolute poverty?
when a household does not have sufficient income to sustain even a basic acceptable standard of living / meet basic needs
What is relative poverty>
a level of household income that is considerable lower than the median level of income within a country
What is the official poverty line?
an income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing. medical needs
What is income?
flow of money to a factor of production
What is wealth?
a stock of valuable assets
What is the distribution of income?
defined as how income is shared out between the population
What factors effect the distribution of income?
- differances in skills, qualifications and work experience
- differances in wealth ( more wealth more income)
- impact of state
What factors lead to an unequal distribtuion of wealth?
- differances in income
- inheritance
- marriage
- property
What is equality?
means income and wealth are shared out equally between all members of society
What is equity?
notion of fairness
What can be used to measure inequality?
lorenz curve and gini coefficient
What is the lorenz curve?
- method of measuring extent of income and wealth inequality
What is the gini coefficient?
- statistical measure of the degree of inequality
- ratio of area
A / A + B
- higher the value the more inequality
What is thge value for perfect equality?
O
What is the value for perfect inequality?
1
WHat are the consequences of ineualities in wealth and income?
- social tensions
- creation of an underclass
What are the benefits from inequality in income and wealth?
- creates an incentive to work
- ## greates trickle down effect
What is the trickle down effect?
- free market view that poorer members of society will benefit from high earners and the relatively wealthy
What are some causes of poverty?
- relatively low wages
- unemployment
- regressive taxation
- old age
- imperfect information
What are some effects of poverty?
- greater demands of welfare system
- poor educational attainment
- poor health
What are some government policies to influence distribution of income and wealth?
- progressive taxes
- national minimum wage
- welfare benefits
- education and training
- reducing unemployment
- promoting trickle down effect
What are the consequences of policies to alleviate poverty?
- progressive taxes ( could create disincentives to work)
- if NMW is too high could lead to increased unemployment
- increasing welfare benefits reduces incentive to work
- may take a long time to get trained
- expansionary monetary and fiscal policy have time lags
- tickle down may not actually work