Inequality

Question 1

What is the difference between wealth and income?

Answer 1

Wealth- stock concept

Income- flow concept

Question 2

What is the difference between wealth inequality and income inequality?

Answer 2

Wealth inequality- inequality based on value of tangible assets e.g. shares, property 🏠 etc
Income inequality- inequality based on incomes 💵 from wages, rent, profit etc

Question 3

How many measures of income inequality are there?

Answer 3

2

Question 4

What are the measures of income inequality?

Answer 4

1) Lorenz Curve

2) Gini Coefficient

Question 5

Describe the Lorenz curve

Answer 5

See figure 7- top of page 30

Question 6

What is the Lorenz curve and what does it show?

Answer 6

Measures degree of inequality- plots cumulative % of population against cumulative % of total income 💵
45 degree line- represents perfect equality … poorest 10% get 10% of income and poorest 20% get 20% of income etc
Curved line- represents unequal distribution of income

Question 7

How can the Lorenz curve be used to calculate the Gini coefficient?

Answer 7

Label the are between diagonal line and Lorenz curve ‘A’
Label the area underneath the Lorenz curve ‘B’
The use equation:
G = (A) / A + B)

Question 8

How can the Gini coefficient be expressed as a percentage?

Answer 8

G = [ (A) / (A + B) ] x 100

Question 9

How many causes of inequality are there within a country?

Answer 9

8

Question 10

What are the causes of inequality within a country?

Answer 10

1) Education 📚 and training
2) Wage rates 💵
3) Unemployment
4) Social benefits
5) Progressive and regressive taxes
6) Inheritance
7) Ownership of assets and their prices e.g. 🏠
8) Pensions (state and private)

Question 11

How many causes of inequality are there between countries?

Answer 11

6

Question 12

What are the causes of inequality between countries?

Answer 12

1) Differences in natural resources e.g. ⛽️
2) Geography e.g. location of country- landlocked or not, closer to large markets or not etc
3) Political instability e.g. civil wars
4) Natural disasters
5) Population growth and structure e.g. large population-> ⬆️ growth, demographic
6) Difference in governance e.g. arguable that centrally planned economies ⬇️ efficient at allocating resources than those who rely on market forces

Question 13

What is the impact of economic change on inequality?

Answer 13

Simon Kuznets- inequality ⬆️ in early stages of industrialisation BUT after inequality certain level of industrialisation inequality ⬇️ as welfare state develops

Question 14

What is the reasoning behind Simon Kuznets theory about inequality?

Answer 14

• inequality inevitable cost associated with economic development- owners of resources become ⬆️ wealthy as opportunities for profitable investment ⬆️
• ALSO movement of workers from countryside to towns keeps wages ⬇️

Question 15

Is inequality a constraint on economic change and development?

Answer 15

Yes

Question 16

How is inequality a constraint on economic change and development?

Answer 16

• very poor have ✖️ collateral (assets) … ✖️ start own business
• absolute poverty could stay ⬆️ when inequality ⬆️
• ⬇️ income earners have ⬇️ marginal propensity to save … limited funds available for investment
• ⬆️ income earners spend large amount on imported 🚘 or may transfer income to other countries (capital flight ✈️)
• ALSO inequality may-> ⬆️ crime 🔪 etc- 👎 for growth

Question 17

What is the significance of capitalism for inequality?

Answer 17

Capitalism-> inequality:

• private ownership of resources- those who have ⬆️ assets- richer
• profit motive-> entrepreneurs taking risks- become richer if business successful