The distribution of income and wealth

Question 1

Income

Answer 1

A flow of money to a fop, usually labour

Question 2

Wealth

Answer 2

a stock of valuable assets such as property or shares

Question 3

Factors leading to unequal distribution of INCOME

Answer 3

1) difference in skills/quals/work experience
2) difference in wealth = wealthier earn more income from their holding of assets in the form of dividends and interest
3) impact of the state = welfare benefits?

Question 4

Factors leading to unequal distribution of WEALTH

Answer 4

1) differences in income = higher earners more able to save money and earn interest = increase wealth
2) Inhertiance
3) Marriage
4) property

Question 5

The degree of inequality is a

Answer 5

normative statement

Question 6

The lorenz curve

Answer 6

• measures the extent of income and wealth inequality

- further the lorenz curve is away from the 45 degree line of perfect equality, the greater the inequality

Question 7

The gini coefficient

Answer 7

ratio of the area between the 45 degree line and the lorenz curve divided by the total area below the 45 degree line

Question 8

what does gini mean

Answer 8

• the higher the value, the more inequality that exists

Question 9

perfect equality

Answer 9

gini coefficient of 0

Question 10

perfect inequality

Answer 10

gini coefficient of 1

Question 11

Costs of income and wealth inequality

Answer 11

1) crime/rioting

2) welfare benefits

Question 12

Benefits of income and wealth inequality

Answer 12

incentive effects = innovation, entrepeneurship

trickle down

Question 13

Trickle down

Answer 13

poorer members of society will benefit from high earners and the relatively wealthy through job opportunities
- their high taxes can be redistributed to raise the living standards of the poor/ fund merit goods

Question 14

Relative poverty

Answer 14

when some people in society are worse off than others

Question 15

absolute poverty

Answer 15

when some people can’t afford the basic necessities to sustain life

Question 16

Causes of poverty

Answer 16

• Relatively low wages
• unemployment
• regressive taxation
• old age
• imperfect info- welfare benefitd?

Question 17

Effects of poverty

Answer 17

1) greater demands on welfare system
2) poor educational attainment - people from poorer backgrounds = lower MRP therfore earn lower wages
3) poor health= higher incidence of chronic illnesses

Question 18

policies to alleviate poverty

Answer 18

1) progressive taxation eg 45% highest tax rate in the UK 2013, reduced from 50%, raise tax free threshold so low paid do not pay tax until they earn a certain amount
2) education and training = increase MRP, reduce occupational immobility
3) promoting trickle down

Question 19

Evaluation of policies to alleviate poverty

Answer 19

1) Progressive taxation = disincentive, lead to voluntary unemployment, may create disincentives to invest/ entrepreneurial if they relate to corporation tax , encourage brain drain as high earners move overseas to low tax countries
2) education and training = time lag, expensive
3) Promoting trickle down = highest earners can afford best tax accountants to help exploit loopholes minimise tax