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Economics Yr2 Micro > Distribution of Income and Wealth > Flashcards

Distribution of Income and Wealth Flashcards

1
Q

Define Income

A

The flow of money a person or household receives ina particular time period

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2
Q

Define Wealth

A

The stock of everything which has value that a person or household owns at a particular point in time

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3
Q

Name 4 factors influencing the distribution of income

A

Factors of production

The distinction between earned and unearned income

Wage and Salary differentials

Globalisation and the international migration of workers

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4
Q

How do the factors of production influence the distribution of income

A

How national income is distributed between the different factors of production

ie. the share of national income of landlords/owners of capital has grown, but labour’s share has fallen

Profits and entrepreneurial incomes have risen at the expense of wages/salaries

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5
Q

What is earned income

A

Wages

Salaries

Self employment income

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6
Q

What is unearned income

How does this influence the distribution of income

A

Income derived from sources other than employment

Interest/investment income

Usually the inequalies in distribution of wealth depend mostly on the difference in unearned income from high income and low income earners

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7
Q

What causes wage and salary differentials

A

Caused by

Differences in labour productivity

Elasticity of supply of labour in that market (Affected by ie. longer training periods)

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8
Q

How has globalisation and the international migration of workers influenced the distribution of income

A
  • Low paid workers are in competition with overseas based workers due to outsourcing and migrants.
  • Outsourcing allows for firms to pay lower wages in other countries, forcing down wages in the UK
  • But for higher paying jobs, executives can force up their wage by saying it must match the rate for the job in other rich countries, if not then they can threaten to leave
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9
Q

Name 4 factors affecting the distribution of wealth

A
  • Ablity to benefit from capital gains
  • Private pension assets
  • Inheritance, gifts and luck
  • Weath taxation vs Income taxation
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10
Q

How does the ability to benefit from capital gains influence the distribution of wealth

A
  • Most consumer durable goods depreciate in value over years after they are purchaed
  • But the value of land/property/shares generally increases
  • It’s mostly the wealthy that own the most shares/property that end up increassing
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11
Q

How do private pension assets influence the distribution of wealth

A
  • Only recently were in house pension schemes made available to UK workers.
  • So low paid workers expected to rely on state pension
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12
Q

What is New Wealth

A
  • Wealth created by entrenprenuers who have built up large personal fortunes, often starting from scratch
  • Can create old wealth
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13
Q

What is old wealth

A
  • People who inherit wealth through the luck of having been born into rich families
  • Can create new wealth
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14
Q

How does the difference between wealth and income taxation influence the distribution of income

A

Government collects much more income tax than tax on wealth

Many loopholes to avoid paying wealth taxes

The wealthy can employ accountants/advisors to find these loopholes

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15
Q

How are the richest and poorest places in Northern Europe spread

A

Richest place - Central London

9 of the poorest places are in the UK aswell

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16
Q

Compare the % of wealth and average income of the top and bottom 10% of the UK

A

Bottom 10% - £5000 0.5% of wealth

Top 10% - £110,000 45% of wealth

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17
Q

What are the 3 main causes of inequality in the UK stated by Simon Tilford - Deputy director of the CER

A

Lack of skills

Centralisation of power in London

Issues with infrastructure/affordable housing

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18
Q

How does the UK compare to the EU15 Average GDP per Capita

A

Only London and South East are above

73% of the UK are below the average

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19
Q

How has the billionare class wealth increased over the last 20 years

A

2000 - Less than $1 Trillion

2017 - $7.67 Trillion

2019 - $9.1 Trillion

20
Q

What is the Lorenz Curve

A

A graph on which the cumulative percentage of total national income/wealth is plotted against the cumulative percentage of population

The extent to which the curve dips below a straight diagonal line indicates the degree of inequality in distribution

21
Q

What is the Gini Coefficient

A

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

22
Q

Explain 4 costs of an equitable distribution of income

A
  • Less incentive
    • People less encouraged to do training/ work harder to earn a higher income as income won’t be higher
  • Less labour Mobility
    • Higher wages are usually what attract workers - More labour shortages
  • Less saving
    • Mainly those on higher incomes with a higher MPS
  • Hurts capital formation
    • The inequitable distribution creates more capital which increase labour productivity and total output
23
Q

Explain 4 Benefits of an equitable Distribution of Income

A
  • Less reliance on gov. welfare payments over time
    • There will be a detraction from the cycle of poverty
  • Increased AD
    • Lower income earners have a higher MPC than higher income earners. If everyone is earning the same, overall more will be spent
  • Less poverty/ resulting societal problems
    • Less problems of disadvantage and poverty that stop people working at their full capacity
  • More holistic/equitable society
    • Peoples consumption decisions aren’t a reflection of status
24
Q

Define Poverty

A

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

25
Q

What is absolute poverty

A

A condition characterised by severe deprivation of basic human needs.

Depends not only on income but also on access to services

26
Q

What is relative poverty

A

Occurs when income is below a specified proportion of average

27
Q

Name 3 causes of poverty in the UK

A

Old age

Unemployment

Low wages

28
Q

How has old age caused poverty

A

Until the early 1980s, state pension rose with average earnings. But they were then changed to be linked to the rate of inflation, so old people started becoming more worse off.

Unless supplemented by other income, state pension is basically a poverty income

29
Q

How has unemployment caused poverty

A

Unemployment benefits are generally lower than in work pay

Though fast, sustained economic growth creating jobs will reduce it

Economic growth can allow governments to spend more on benefits etc.

30
Q

What are low waged workers

A

Workers with jobs where their hourly/weekly earnings are low

May be unskilled or skilled workers who have been structurally unemployed so had to accept jobs in unskilled jobs

Usually relatively poor

31
Q

Who are the unwaged poor

A

The poor who have no income

Some are absolutely poor

eg. the homeless

32
Q

What are the 3 effects of poverty in the UK

A

Educational Deprivation

Health Deprivation

Effect on communities

33
Q

Explain the affect of poverty on education

A

The CAPG argues that children from poorer backgrounds lag at all stages of education

Those on free school meals achieve 1.7 grades lower at GCSE and 3 terms behind peers in yr7

34
Q

Explain the affect of poverty on health

A

Children born in poorest areas weigh on average 200g less and more likely to die at birth or in infancy.

Professionals on average live 8 years longer

35
Q

What is the effect of poverty on communities

A

Twice as likely to live in bad housing, miss out on activities such as school trips, holidays, going out and may have to make a choice between food and heating.

Elderly taking up beds in hospitals after treatment as they simply have no where else to go

36
Q

What are the 5 stages through which taxes and benefits affect the distribution of income

A
  • Household start with original income
    • Income from jobs/private pensions/investments
  • Recieve income from cash benefits
    • Cash benefits + original income = Gross income
  • Then pay direct taxes
    • Money left from gross income after direct taxes is disposable income
  • Then pay indirect taxes on spending
    • Disposable income - indirect taxes is post-tax income
  • Households receive benefit from services provided by the government
    • Post tax income + these benefits = Final income
37
Q

What is the poverty trap

A

When people are no better off following a pay increase because tax being paid increases and benefits are withdrawn

38
Q

What is fiscal drag and its affect

A

When inflation/earnings growth pushes people into the next tax band

Reduces/limits increase in AD so is mild deflationary policy and an automatic stabiliser

39
Q

What is the poverty line in the UK

A

UK level of absolute poverty

£195 a week for a lone parent with 2 children

40
Q

What is the unemployment trap

A

A situation in which there is no incentive for someone who is unemployed to start working because the combined loss of benefits and need to pay income tax would result in them being worse off

41
Q

What is situational poverty

A

When a person falls below the poverty line due to a sudden event

42
Q

What would be the affects of a government employing progressive taxes

A

Reduce inequality

Allow government to reduce regressive taxes

Could hurt incentives

43
Q

Give an example showing the relationship between economic growth and poverty

A

China’s rapid economic growth between 1985 and 2001 helped 450 million people be lifted out of poverty. .

44
Q

Describe the progressive tax system of Scandinavia and the US

A

US - Progressive but doesn’t effectively redistribute income

Scand. - Less progressive, gov. gets more revenue which they redistribute effectively

45
Q

How do developing countries try to tackle poverty

Give an example

A

Improve human capital through improving education

Trying to stimulate growth/employment by diversifying economy

Sir Lanka trying to develop tourism industry

Economics Yr2 Micro (7 decks)

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