Lesson 30-Redistribution of Income Flashcards
Define income inequality
Refers to the divergence in income that exists between the rich and the poor.
3 reasons for income inequalities
- Education and work experience
- Government taxes and benefit system
3.Ownership of Assets
How is the income inequality measured?
The Lorenz Curve
Define The Lorenz Curve
It is diagrammatical device used to indicate the extent of inequality of income distribution within a country.
What does a point near the income inequality curve indicate?
Experiences the least inequality
What does a point far away from the income inequality curve indicate?
High inequality
What are the 2 types of Poverty?
- Absolute Poverty
2.Relative Poverty
What is absolute poerty?
This refers to when people’s income is not sufficient to meet their basic needs for survival. People living in absolute poverty are those that are living on less than $1.25 per person per day.
What is relative poverty?
This exists when a person is poor compared to others in their society. It is measured by calculating the % of income of the population living below 50% of the middle income household.
What are the govt policies to reduce inequalities?
- Tax and benefit system-More progressive tax and less regressive tax
- HCI
3.NMW
What are progressive taxes?
High income earners have to pay a higher proportion of tax and low income earners pay a lower tax
What are regressive taxes?
Low income earners have to pay a high tax whilst high income earners pay a lower tax.
How can HCI reduce inequalities?
Govt expenditure on education and training will enable workers to secure better jobs as firms will be encouraged to recruit workers who are educated and trained. By getting a higher income it will lead to a reduction in inequality.
How can NMW help reduce inequality?
An NMW will increase the disposable income of low income earners thereby reducing the income gap. Thereby reducing the gap between high and low income earners.
