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Economics (MICRO) > Poverty & distribution of income > Flashcards

Poverty & distribution of income Flashcards

1
Q

What are the two main types of poverty

A

Absolute poverty
Relative poverty

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2
Q

What is absoloute poverty

A

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

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3
Q

What is relative poverty

A

Those on less than 60% of median UK income

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4
Q

What is fuel poverty

A

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

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5
Q

Give 5 causes of poverty

A

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

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6
Q

What is the poverty trap

A

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

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7
Q

What is the cause of the poverty trap

A

High marginal tax rates

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8
Q

What type of concept is income

A

Income is a flow concept

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9
Q

What type of concept is Wealth

A

Wealth is a stock concept

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10
Q

Why is income called a flow concept

A

It flows from the 4 factors of production

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11
Q

Why is wealth called a stock concept

A

It is a stock of valuable assets

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12
Q

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

A

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

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13
Q

What are the 3 measures of income inequality

A

Size distribution
Frictional distribution
Geographical distribution

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14
Q

How is size distribution presented

A

Lorenz curve

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15
Q

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

A

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

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16
Q

Draw the Lorenz curve & show the Gini coefficient

A
17
Q

What does a Gini coefficient closer to 1 mean

A

More unequal

18
Q

What is frictional distribution

A

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

19
Q

What is geographical distribution

A

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

20
Q

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

A

HS2

21
Q

State the 5 policies to alleviate poverty/income distribution gap

A

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

22
Q

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

A

Due to the trickle down effect

23
Q

What is the criticism of the trickle down effect

A

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

24
Q

Draw the diagram showing an increase in the minimum wage

A
25
Q

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

A

Creates excess supply of labour (unemployment)
Creates inflation

26
Q

When is increasing minimum wage most likely to have little impact on unemployment levels

A

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

27
Q

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

A

By raising the real value of benefits
Or introducing a tapered system to incentivise employment

28
Q

What is the argument against raising the real value of benefits to help to alleviate poverty and the distribution of income

A

It may worsen the unemployment trap

29
Q

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

A

By reducing regressive tax
Increasing progressive tax
Increasing personal allowance

30
Q

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

A
  • 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
31
Q

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

A
  • 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
32
Q

What is the difference between minimum and living wage

A

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

33
Q

Explain how minimum wage affects a monopsony

A

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

34
Q

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

A

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

35
Q

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

A

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

36
Q

How can the government reduce wealth inequality

A
  • 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 )

Economics (MICRO) (10 decks)

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