Inequality

Question 1

What is absolute poverty?

Answer 1

• condition characterised by severe deprivation of basic human needs
• not only on income but also on access to services

Question 2

What is the economic definition of absolute poverty?

Answer 2

• earning less than $2.15 per day at PPP exchange rates

Question 3

What is relative poverty?

Answer 3

• when someone’s experiences a living standard which is below the minimum acceptable standard within the society in which that person lives
• (UK = disposable income is less than 60% of median income in the country)

Question 4

Is it possible to be in absolute poverty but not relative poverty?

Answer 4

Yes

Question 5

What is the gini coefficient?

Answer 5

• measures inequality on a scale from 0-1
• area between perfect equality and Lorenz curve

A/A+B

Question 6

What is the Lorenz curve?

Answer 6

• graphical representation of the distribution of income
• cum % of population against cum %of countries wealth

Question 7

What is the palma ratio?

Answer 7

• income share of the top 10%/ income share of bottom 40%
• focuses more narrowly on distribution between bottom end and top end
• government policy in redistributing income mostly focuses on these groups

Question 8

What is ideal palma ratio?

Answer 8

• equal or smaller than 1

Question 9

What is the range in gini index?

Answer 9

• (0-1)
• (0.25-0.75)

Question 10

What is Pareto efficient?

Answer 10

• you can’t make someone in society better off without making someone else worse off

Question 11

What is wealth?

Answer 11

• the value of the assets owned by a household

Question 12

What are earnings

Answer 12

• income from labour

Question 13

What is market income?

Answer 13

• all income received as earnings
• all income received from business owned by the household or from investments

Question 14

What is disposable income?

Answer 14

The income that a family can spend:
- after paying taxes
- after receiving any monetary transfers from the government such as unemployment benefit and pensions

Question 15

List earnings, disposable income, and wealth from least unequally distributed to most

Answer 15

• disposable income
• earnings
• wealth

Question 16

Inequality between countries accounts for …..% of global inequality

Answer 16

90

Question 17

What is original income?

Answer 17

• income before taxes & benefits

Question 18

What is gross income?

Answer 18

• income after cash benefits

Question 19

What is disposable income?

Answer 19

• income after cash benefits & direct taxes

Question 20

What is post tax income

Answer 20

• income after cash benefits, direct & indirect taxes

Question 21

What is final income?

Answer 21

• income after cash benefits & benefits in kind (NHS & state education)

Question 22

What is the lottery of birth?

Answer 22

• determines initial endowments in life which then create differences in the ability to earn an income

Question 23

List the 3 differences in human capital that can cause inequality.

Answer 23

• childhood nutrition which has a lifelong impact on health outcomes
• educational stimuli’s which has a lifelong impact on education incomes
• gender ethnicity race religion can all influence access to high paying labour markets

Question 24

List three ways differences in social capital can cause inequality

Answer 24

• influence aspiration & motivation to enter high paying labour markets
• can influence access to high paying labour markets
• can influence policy makers decisions that tilt the playing field in favour of one group

Question 25

How can differences in financial capital affect inequality?

Answer 25

• can provide additional income
• can finance investment in developing ones earning potential
• can provide a safety net that ncourages risk taking opportunities with large pay off as well as the opportunity to recover from misfortune

Question 26

What are some policies to reduce differences in human capital?

Answer 26

• free health services
• compulsory & free (at the point of use) primary/secondary education
• student loans for tertiary education

Question 27

What are policies to reduce differences in social capital?

Answer 27

• mentoring programs & bursaries to promote greater social mobility
• quotas for stakeholders that have been excluded from key leadership/ governance positions

Question 28

How do you reduce differences in financial capital?

Answer 28

• inheritance tax
• progressive stamp duty on asset purchases
• progressive capital gains tax on asset sales

Question 29

Policies to reduce asymmetric bargaining power in labour markets

Answer 29

• NMW
• mandating transparency in earnings of high paid employees
• guidance on the differential between highest and lowest paid employees in firms

Question 30

What are basic policies to reduce inequality?

Answer 30

• progressive tax + tax benefits
• cash benefits (free education at point of access)
• national minimum wage
• max wage
• wage transparency