Inequity

Question 1

What is the main problem of inequality of distribution in the free market?

Answer 1

Households who cannot afford to pay the market price of a good or service will not get to consume it, even when these might be necesstities.

Question 2

How does inequality of distribution arise?

Answer 2

1. Income being too low (thus relating to income inequality and wage determintation in the labour market)
2. Price of essential goods and services being too high

Question 3

How do we measure income inequality?

describe the mechanism

Answer 3

Gini coefficient
- Value from 0 to 1
- 0 = perfect equality (everyone gets the same income)
- 1 = perfect inequality (one person earnsall the income)
- calculated using the Lorenz curve

Question 4

What are the axes for the labour market graph?

Answer 4

X axis: quantity of labour in an occupation
Y axis: wage rate
Supply: from households
demand: from firms

Question 5

What are factors that affect the labour supply curve?

Answer 5

Movement along the supply curve
- Increase in wage rate will lead to rise in quantity of labour supplied

Shift of the labour suply curve
- change in how many people can get qualified
- change in population demographics
- change in foreign labour policy
- change in “attractiveness” of job role

Question 6

What are factors that affect labour demand?

Answer 6

Movement along the demand curve
- increase in wage rate will lead to a fall in quantity of labour demanded

Shift of the labout demand curve
- change in price of output due to a change in demand for the good
- change in laour productivity
- change in productivity of capital (capital as a substitute for labour)

Question 7

What are the government policies that address inequality?

7 in total

Answer 7

Measures that make the market price cheaper
- Price ceiling
- subsidies
- RnD (process innovation)

Measures that increase the purchasing power of lower-income households
- price floor (legislation or govt buys surplus)
- transfer payments (grants/vouchers)
- income redistribution (progressive tax/indirect tax)
- invest in education and skills training

policy explain, pros and cons, welfare effect, evaluate

Question 8

What is the evalutation criteria for policies?

Answer 8

• effectiveness of the measure
• extent of trade-off with other economic objectives (efficiency vs inequity)
• fiscal sustainability of the measure