Inequality

Question 1

What is relative poverty

Answer 1

When a households income is below 60% of the median countries population.
-> for example one who lives in relative poverty in the Uk may be better off than one in (Chad) as we can access free health care ect

Question 2

What is absolute poverty

Answer 2

When income is so low that it is impossible to access basic necessities

Question 3

What percentage of people live in relative poverty in the UK

Answer 3

18% in 2019/2020

Question 4

Define wealth inequality

Answer 4

Wealth inequality therefore refers to the unequal distribution of assets in a group of people.
Assets are things such as property, investments or art work.

Question 5

define income inequality

Answer 5

The unequal distribution of income in a group of people

Question 6

3 negatives of inequality

Answer 6

1. Can cause relative poverty -> increased costs to government through universal credit.
2. can causes an increase in crime -> as people may need to steal to access basic goods
3. (evaluation) If there is regional inequality it can cause a disincentive to work.

Question 7

2 positives of inequality

Answer 7

1. Trickle down effect

2. Higher incentive to work or better their skills -> as those who do get paid better sums of money

Question 8

What is the trickle down effect?

Answer 8

If high-income earners gain an increase in salary, then everyone in the economy will benefit as their increased income and wealth filter through to all sections in society

This can occur through higher AD or increased business investment.

Question 9

Evaluation of the trickle down effect

Answer 9

1. High-income earners have a high marginal propensity to save. Therefore, the increased disposable income from a tax cut does not filter into other sections of the economy because it is saved not spent. -> less money for benefits

This was shown in Ronal Reagans presidency when income tax is lowered

Question 10

What effect does an income tax cut have on the economy?

Answer 10

A tax cut increases incentive to work as one can gain more disposable income. As a result it may increase economic activity

Question 11

2 Causes of income inequality

Answer 11

1. Weakening of trade unions
2. A reduction in the level of progressiveness of the tax and benefits system or a Regressive tax taking a larger percentage of income from low-income earners than from high-income earners.

Question 12

Equity

Answer 12

Equity recognizes that each person has different circumstances and allocates the exact resources and opportunities needed to reach an equal outcome.
Equity focuses on equal outcome

Question 13

Equality

Answer 13

Equality means each individual or group of people is given the same resources or opportunities

Equality focus on equal starts.

Question 14

What is the cost of inequality in the UK

Answer 14

£39 billion per year

Many of the costs associated with inequality remain incalculable. For example, how does one value the higher level of community cohesion, trust, and social mobility associated with less unequal countries?

Question 15

4 ways to solve poverty

Answer 15

1. progressive taxes
2. minimum wages
3. Supply side policies (such as education)
4. Increased benefits

Question 16

3 negative points of progressive taxes

Answer 16

1. can disincentivize workers and lower economic output - Laffer curve curve
2. it may only help the poor if the tax revenue earned is reinvested into the poor areas
3. Brain drain - people relocate that are high skilled leave the country

Question 17

Evaluations point for the minimum wage

Answer 17

1. It can cause unemployment as labour intensive industries may especially be affected. ->more unemployment benefits

Question 18

how can poverty be solved by market forces

chains of reasoning

Answer 18

1. with low income taxes and low welfare spending there is more incentive to get employed
2. more people get educated
3. more eligible for jobs (better quality and quantity of FOPS)
4. higher income
5. increased demand results in the multiplier effect elsewhere

Question 19

what is the employment trap

Answer 19

when it becomes more beneficial to stay unemployed as the benefits earned is much higher than working a job

Question 20

why may the free market be unable to solve poverty

Answer 20

1. Assumptions required for free markets to operate well are inconsistent with reality such as the myth of perfect and symmetric information, rational actors, and costless transactions.
2. A competitive environment creates an atmosphere of survival of the fittest. This causes many businesses to disregard the safety of the general public to increase the profits

Question 21

causes of inequality

Answer 21

1. rising property prices has reduced disposable incomes for young people
2. increase in part time and temporary work which isn’t protected by trade union and is often low paid

Question 22

why is the national minimum wage limited in reducing inequality

Answer 22

as they jobs usually are occupied by second income earners and students who aren’t poor

Question 23

what is on the axis of gini coefficient

Answer 23

Y- percentage of income

X- percentage of population.

Question 24

what represents perfect equality in the gini coefficient

Answer 24

0= perfect equality

1= perfect inequality

Question 25

Progressive taxation

Answer 25

Tax system where % rate of increases as an individuals income increases

Question 26

Aims of progressive taxation

Answer 26

Reduce inequality
Recognition of the diminishing marginal utility of income
Increase incentive for people to take low paid jobs - lorry drivers

Question 27

Other types of progressive tax

Answer 27

Capital gains

Stamp duty

Question 28

Justifications for progressive taxes

Answer 28

The diminishing marginal utility of money - living costs
Positional externalities
Happiness

Question 29

Regressive tax

Answer 29

Percentage of tax payed is the same for all consumers hurting lower income individuals more as it takes a larger percentage of their income

Question 30

Example of regressive tax

Answer 30

VAT

Excise duty

Question 31

Fiscal drag

Answer 31

where inflation and earnings growth may push more taxpayers into higher tax brackets. Therefore fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates.

Question 32

Poverty trap

Answer 32

when people have little or no incentive to get a better paid job or work longer hours.