Poverty & distribution of income Flashcards
What are the two main types of poverty
Absolute poverty
Relative poverty
What is absoloute poverty
Unable to afford basic necessities to live (those on less than 2 dollars a day in income)
What is relative poverty
Those on less than 60% of median UK income
What is fuel poverty
Spending more than 10% of disposable income on gas and electricity
Give 5 causes of poverty
Low income
Unemployment (Having only benefits as income)
Old age
Illness/addiction
Childcare costs
What is the poverty trap
The idea that it is difficult to escape poverty by earning extra income as the extra income results in more income tax being paid
What is the cause of the poverty trap
High marginal tax rates
What type of concept is income
Income is a flow concept
What type of concept is Wealth
Wealth is a stock concept
Why is income called a flow concept
It flows from the 4 factors of production
Why is wealth called a stock concept
It is a stock of valuable assets
What is the form of income for all 4 factors of production
Land - rent
Labour - wage
Capital - Interest
Enterprise - Profit
What are the 3 measures of income inequality
Size distribution
Frictional distribution
Geographical distribution
How is size distribution presented
Lorenz curve
What is on the x and y axis of the lorenz curve
x - Cumulative % of households
y - Cumulative % of income
Draw the Lorenz curve & show the Gini coefficient
What does a Gini coefficient closer to 1 mean
More unequal
What is frictional distribution
Based on how income is earned ( wages remains the primary source of income for most people)(more common for second income to be rent)
What is geographical distribution
The idea of the north south divide ( southeast is richest)
(Financial services in LDN contributes more than 10% if total UK GDP)
Which infrastructure project is designed to help geographical distribution in the UK
HS2
State the 5 policies to alleviate poverty/income distribution gap
Do nothing
Promote economic growth
Increase the minimum wage
Reform the benefits system
Reform the tax system
How may doing nothing aid in alleviating poverty/ income distribution gap
Due to the trickle down effect
What is the criticism of the trickle down effect
An OECD report stated that empirical evidence suggests that the trickle down effect doesn’t exist
Draw the diagram showing an increase in the minimum wage
What are 3 criticisms for increasing minimum wage to alleviate poverty and the distribution of income
Creates excess supply of labour (unemployment)
Creates inflation
Doesnt solve the poverty trap
When is increasing minimum wage most likely to have little impact on unemployment levels
Empirical evidence suggests increasing minimum wage have little impact on employment especially when capital cant substitute labour
How can reforming the benefits system help to alleviate poverty and the distribution of income
By raising the real value of benefits
Or introducing a tapered system to incentivise employment
What is the argument against raising the real value of benefits to help to alleviate poverty and the distribution of income
It may worsen the unemployment trap
How can reforming the tax system aid to alleviate poverty and the distribution of income
By reducing regressive tax
Increasing progressive tax
Increasing personal allowance
Give 3 ways how economic growth may aid to alleviate poverty and the distribution of income
- 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
Give 3 ways how economic growth may not reduce poverty and the distribution of income
- 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
What is the difference between minimum and living wage
The minimum wage is age related and legally payable
The living wage is payable to 21 year olds plus
Explain how minimum wage affects a monopsony
The effects of a minimum wage counteract the effects of a monopsony
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
Increases incentive for people to enter the labour market and accept a job
How can increasing minimum wage encourage the use of the black market
Firms may not be able to afford paying workers a higher wage, and so they employ workers unofficially, without registering them for tax details
How can the government reduce wealth inequality (3 policies)
- Inheritance tax (Should include exemptions for small inheritances to protect middle-income families)
- Annual net wealth tax (Tax a percentage of an individual’s net wealth, including assets like property, stocks, bonds, and savings which may reduce wealth concentration over time - yet may require international cooperation with individuals owning assets abroad)
- Luxury taxes (Tax on the purchase of luxury goods, such as yachts, private jets, high-end cars, and jewellery)(e.g. a rise in the APD duty for private jets in recent budget)
- Financial transactions tax (Tax on trades of financial assets, such as stocks, bonds, and derivatives) (yet requires global coordination to prevent market relocation)
- Capital gains tax (Tax profits from the sale of assets like stocks, real estate, and other investments )
Give an example of poor geographical distribution in the UK
Financial services in the city contributes more than 10% if total UK GDP
Give 5 changes to the benefits system which took place in march
- Going to be harder to claim PIP , which is a non means tested benefit that supports those who with health conditions that is currently worth £108 a week
- There will be a PIP assessment process review
- Universal credit basic rate will rise to £775 by 2030
- Disability U.C top ups are going down
- New benefit called unemployment insurance will be introduced, which is a merger of job seekers allowance and employment support allowance
What is the new benefit that the government introduced in March
New benefit called unemployment insurance will be introduced, which is a merger of job seekers allowance and employment support allowance
What pledge did the government make in the SPRING STATEMENT as a means to tackle income inequality
A pledge to hire 400 more HMRC staff to tackle “wealthy offshore non-compliance” - estimated to bring in an extra £500m over five years
