Economic issues

Question 1

Issue 1:
List some key measurements of income inequality

Answer 1

Gini coefficient
Lorenz curve

Question 2

Why is the issue important?

Answer 2

Income inequality causes inequality in other areas such as education. Thus, certain people see greater job prospects than others, given certain people are more likely to pursue tertiary levels of education than others. This harms the productive capacity of the Australian economy as a whole.

Question 3

List two factors influencing income inequality

Answer 3

: Forces of globalization
As Globalization allows economies to specialize their production, certain nations have benefited immensely in terms of growth. However, other nations have not seen these kinds of improvements in their economy’s growth. This comes down to what economies specialize in, impacting the wealth generated by economies due to exports and hence the income levels of certain nations.
: The function of Labour markets
Certain people are better able to access employment in the Labour market, which improves their ability to earn incomes over others. Important factors in accessing employment include education, experience, language, and more. Thus, the function of the labour market impacts how wealth is distributed across the Australian economy.

Question 4

Describe the perspectives which households have on income inequality

Answer 4

: Poorer or low-income households will be in great support of fairer distributions of income as this will likely improve the quality of their lives. However, wealthier households won’t care as much about the issue of income inequality, and can actually be harmed if the government takes certain measures to achieve fairer income distributions (through the progressive taxation system).

Question 5

Describe the perspectives which businesses hold on income inequality

Answer 5

The main view of businesses in any economy is the maximization of profit. So, a business will view income redistribution positive or negatively depending on how it impacts their ability to generate profit.
For instance, supermarkets would support a redistribution of income (as it’ll increase product demand), but banks won’t as they’ll pay more in corporate tax.

Question 6

Describe the perspectives of governments on the topic of income inequality

Answer 6

The traditional viewpoint of governments is to maximize living standards in a nation. Thus, federal and state governments (who can control this issue) should have this issue at the top of their economic priorities. The extent of this depends on the kind of government and where they sit on the political spectrum (with governments towards the left supporting income redistribution in an economy).

Question 7

List some economic responses to income inequality

Answer 7

: Per the 2022-2023 Federal government, Australia offered $61.5 million in foreign aid to South East Asia as a means of improving the income inequality in their nation. (Being a response to income inequality on an international level).

: The Federal government employs the progressive income tax system, which taxes wealthier households to greater degrees and aims to redistribute incomes more equally across the Australian nation.

: Consumers migrate to nations where working opportunities are greater, increasing their incomes generated.