The distribution of income and wealth: poverty and inequality Flashcards
Factors affecting distribution of income
Different wages
unwaged people-state benefits
Taxes-Progressive taxes
Lorenz curve
Distribution of wealth graphically
What does lorenz curve look like
Horizontal axis-culmative percentage of population
vertical axis-culmative percentage of income
diagonal line is complete equality
Gni coefficient
The measure of inequality on a lorenz curve
Gni coefficient equation
Area a divided by area a + Area B
Coefficient of 0 is complete equality
Equality
Everyone is treated equally
Equity
is about fairness people have different have different circumstances and needs
Normative statement
based on opinion
Horizontal equity
People with the same circumstance treated fairly for example all people are taxed the same
Vertical equity
people with different circumstance treated fairly for example people with higher income taxed more
Advantages of unequal distribution of income
Gives people incentive to work hard
it encourages people to work
encourages trickle down effect if theres inequality and economic growth the rich could give to the poor
Relative poverty
when someone has income relative to the rest of the population
absolute poverty
when you cant afford the basics like food and shelter
causes of poverty
unemployment-the unemployed will likely have bottom level income
wages-workers likely to recieve low wages
Effects of poverty
poverty trap-when people are relying on state benefits or on low wages which could be depleted by tax
Government policies to alievate poverty
benefits,state provision,progressive tax,economic growth, national minimum wage
Benefits- Government policies to alievate poverty
help to redistribute income through tax revenue
costs-could contribute to poverty trap
State provision-Government policies to alievate poverty
bringing free education and health to reduce inequality gap
costs- free access could be expensive and reduces incentive to work and also increases tax
Progressive tax-Government policies to alievate poverty
Bigger percentage of tax taken from people with higher incomes than those with lower income, help to reduce the difference in income
costs- Progressive tax contributing to poverty trap, loss of labour and money caused by consumers moving country due to high tax
Economic growth-Government policies to alievate poverty
jobs are created and unemployment reduced, higher wages
costs- economic growth hard to achieve, result in large inequalties through the rich getting richer, more poverty and inequality
National minimum wage-Government policies to alievate poverty
reducing poverty among lowest paid workers, help bring a reasonable standard of living
costs-firms may employ fewer people rise in unemployment
