Inequality 4.2.2 Flashcards
income
flow of earnings
wealth
stock of asset
income inequality
the extent to which income is distributed in an uneven manner
why is wealth more likely to be unevenly distributed than income
assets can be accumulated over time and can generate income from it over successive generations through inheritance
measures of income inequality
Lorenz curve
Gini coefficient
The Lorenz curve
shows cumulative percentage of the population plotted against the cumulative percentage of income that those people have
The Gini coefficient
A/(A+B) the bigger the coefficient, the greater the inequality
causes of wealth and income inequality within countries
wages due to human capital, working longer, skills are more in demand, higher income=can save more & build up wealth
those on lower incomes would spend most of it on necessities
higher wealth=more able to undertake risky investment, inheritance often allows high level of wealth
luck with buying a house in the right area/assets/ inheriting
being at the peak of your career/being older=chance to build up assets
causes of wealth and income inequality between countries
some countries are held back by war/droughts/famines/earthquakes
social groups may be excluded & marginalised
developed cpuntries favour eachother when trading
kuznet’s hypothesis
society develops from agriculture to industry, inequality rises as wages of industrial workers rise faster than farmers
wealth is then redistributed through taxation + gov spending so inequality falls
piketty’s theory of inequality
inequality rises as country develops as rate of return on capital grows the rich get richer
why would capitalism lead to income inequality
wage differentials, wealth differs based on assets they own & can be passed on
why would inequality be essential for capitalism to work
gives people the incentive to work hard to have more
