Poverty & distribution of income

Question 1

What are the two main types of poverty

Answer 1

Absolute poverty
Relative poverty

Question 2

What is absoloute poverty

Answer 2

Unable to afford basic necessities to live (those on less than 2 dollars a day in income)

Question 3

What is relative poverty

Answer 3

Those on less than 60% of median UK income

Question 4

What is fuel poverty

Answer 4

Spending more than 10% of disposable income on gas and electricity

Question 5

Give 5 causes of poverty

Answer 5

Low income
Unemployment (Having only benefits as income)
Old age
Illness/addiction
Childcare costs

Question 6

What is the poverty trap

Answer 6

The idea that it is difficult to escape poverty by earning extra income as the extra income results in more income tax being paid

Question 7

What is the cause of the poverty trap

Answer 7

High marginal tax rates

Question 8

What type of concept is income

Answer 8

Income is a flow concept

Question 9

What type of concept is Wealth

Answer 9

Wealth is a stock concept

Question 10

Why is income called a flow concept

Answer 10

It flows from the 4 factors of production

Question 11

Why is wealth called a stock concept

Answer 11

It is a stock of valuable assets

Question 12

What is the form of income for all 4 factors of production

Answer 12

Land - rent
Labour - wage
Capital - Interest
Enterprise - Profit

Question 13

What are the 3 measures of income inequality

Answer 13

Size distribution
Frictional distribution
Geographical distribution

Question 14

How is size distribution presented

Answer 14

Lorenz curve

Question 15

What is on the x and y axis of the lorenz curve

Answer 15

x - Cumulative % of households
y - Cumulative % of income

Question 16

Draw the Lorenz curve & show the Gini coefficient

Answer 16

Notes

Question 17

What does a Gini coefficient closer to 1 mean

Answer 17

More unequal

Question 18

What is frictional distribution

Answer 18

Based on how income is earned ( wages remains the primary source of income for most people)(more common for second income to be rent)

Question 19

What is geographical distribution

Answer 19

The idea of the north south divide ( southeast is richest)
(Financial services in LDN contributes more than 10% if total UK GDP)

Question 20

Which infrastructure project is designed to help geographical distribution in the UK

Answer 20

HS2

Question 21

State the 5 policies to alleviate poverty/income distribution gap

Answer 21

Do nothing
Promote economic growth
Increase the minimum wage
Reform the benefits system
Reform the tax system

Question 22

How may doing nothing aid in alleviating poverty/ income distribution gap

Answer 22

Due to the trickle down effect

Question 23

What is the criticism of the trickle down effect

Answer 23

An OECD report stated that empirical evidence suggests that the trickle down effect doesn’t exist

Question 24

Draw the diagram showing an increase in the minimum wage

Answer 24

Notes

Question 25

What are two criticisms for increasing minimum wage to alleviate poverty and the distribution of income

Answer 25

Creates excess supply of labour (unemployment)
Creates inflation

Question 26

When does increasing minimum wage have little impact on employment

Answer 26

Empirical evidence suggests increasing minimum wage have little impact on employment especially when capital cant substitute labour

Question 27

How can reforming the benefits system help to alleviate poverty and the distribution of income

Answer 27

By raising the real value of benefits

Question 28

What is the argument against reforming the benefits system help to alleviate poverty and the distribution of income

Answer 28

It may worsen the unemployment trap

Question 29

How can reforming the tax system aid to alleviate poverty and the distribution of income

Answer 29

By reducing regressive tax
Increasing progressive tax
Increasing personal allowance

Question 30

Give 3 ways how economic growth can aid to alleviate poverty and the distribution of income

Answer 30

• If wages of the lowest paid rise faster than the average wage
• If growth creates opportunities which reduces unemployment
• If progressive taxes are used to redistribute income

Question 31

Give 3 ways how economic growth may not reduce poverty and the distribution of income

Answer 31

• Growth often creates best opportunities for those who are educated and skilled (high skill high wage economy)
• May increase structural employment if technology improves
• Wealthy people gain more from dividends, interest from savings and rent

Question 32

What is the difference between minimum and living wage

Answer 32

The minimum wage is age related and legally payable
The living wage is payable to 21 year olds plus

Question 33

Explain how minimum wage affects a monopsony

Answer 33

The effects of a minimum wage counteract the effects of a monopsony

Question 34

How might increasing minimum wage aid in reducing the number of people out of the labour force, as well as reducing the effects of the unemployment trap

Answer 34

Increases incentive for people to enter the labour market and accept a job

Question 35

How can increasing minimum wage encourage the use of the black market

Answer 35

Firms may not be able to afford paying workers a higher wage, and so they employ workers unofficially, without registering them for tax details