Distribution Of Income And Wealth Flashcards
Difference between income and wealth
Income is a flow
Wealth is a stock
How is income measured by world bank
GNI
How are countries categorised by world bank
Low, lower middle, upper middle and higher incom countries
Factors influencing distribution of income
Factors of production
Distinction between earned and unearned income
Wage and salary differentiald
Globalisation/ migration
Explain how factors of production influence distribution of income
E.g. owners of land (fop) receive high income
Labourers waves don’t rise as fast as productivity so share in national income is low
Owners of capital receive income in dividends
Difference between earned an unearned income
Earned - wages, salaries
Unearned - interest, investment income
Explain wage and salary differentials
Higher labour productivity
Qualification levels
E.g pilots and cleaners
Figures of wealth in 2010-2012
Poorest owned 9% all together
Top fifth richest owned 62% all together
Factors influencing distribution of wealth
Ability to benefit from capital gains
Private pension assets
Inheritance and luck
Wealth taxation versus taxation on income
How does a capital gain occur
When the value of an asset increase
Share prices also rise in the long run
When is complete equality achieved
When the distribution of income = everyone receives same amount of invomr
Equity
When everybody is treated fairly
Define the Lorenz curve
Graph on which the percentage of total national income is plotted against the percentage of population
The extent to which the curve sips indicates degree of inequality
Draw the Lorenz curve
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Gini coefficient
Measured the extent to which the distribution of income or wealth among individuals or households within an economy deviates from perfectly equal distrubution
Gini coefficient formula
Area A / area a + area b
Policies to alleviate inequality
Welfare benefit system
Fiscal drag - when govt fails to raise tax threshold inline with inflation
Minimum wages
Providing subsidised housing education training and healthcare
Consequence of govt policy
Reducing incentive to work
Nay have adverse effects eg slow economic growth and loss of international competitiveness
Some fiscal measures has led to the development of poverty and unemployment trap
The unemployment trap
Contains unwaged social security claimants who choose unemployment
They decide they are better off without work
Progressive taxation
As income rises a great portion of income is paid in taxation
Equality vs equity
Equality - everyone treated the same
Equity - everyone treated fairly
