Topic 1 Inequality Flashcards

1
Q

Why do we care about inequality (5)

A

1.Welfare consideration (perceived status of indictable and happiness

2.Trust and social capital- cooperation- link between inequality and violent crimes, however direction of causality controversial

3.Socio-political instability. I.e if lots of inequality, people get the perception of a lack of social justice.

  1. Economic growth- inequality can facilitate and also reduce growth
  2. Other e.g industrialisation, health education, political reforms etc which impact inequality.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Inequality association to long run economic growth (2 points)

A

Research finds inequality is either irrelevant or bad for LR growth

Extreme inequality is associated with financial crises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why do we not mind inequality? (3)

A

Excessive equality can be bad for economic efficiency e.g no punishment for being inefficient or not contributing

Inequality produces incentives

Inequality may be result of choice e.g
Leisure v income
Risk adversity
Short/long term income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Forms of inequality

A

Personal income distribution
Factor/functional distribution
Global income distribution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Personal income distribution: graphical tools, measure, data and data sources (2)

A

Graphical tools: Lorenz curve

Measure: Gini coefficient

Data: individual/household data

Data sources:
income tax data i.e HMRC
Family expenditure/income survey i.e BHPS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Lorenz curve diagram

A

Closer to perfect line of equality=more equal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Note: when Lorenz curves intersect, we need more information to determine which is more unequal.

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Gini coefficient scale

(The area underneath the diagonal)

A

0-perfect equality
1-perfect inequality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How to calculate Gini coefficient

A

Divide area under Lorenz curve into trapeziums: A1, A2 etc (depending on amount of income groups)

Calculate area of each trapezium, and add together. (A)

Gini coefficient formula is
1-2A

A=area of each trapeziums added together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Area of trapezium formula

A

A=
(a+b) x H
/
2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Pros of Gini coefficient (3)

A

Straightforward to calculate

Takes into entire income distribution into account

Can be calculated even if data is not divided into percentiles etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Disadvantages of Gini coefficient (3)

A

Not additive across groups

The top or the bottom of distribution are equally weighted. (Bottom is usually more important in terms of how income is distributed for poor rather than rich)

Different Lorenz curves can indicate same Gini coefficient (same final numeric figure but different line of distribution)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Applied: most equal (3) and least equal (3)

A

Most equal: Sweden Norway Finland

Least: Comoros Namibia South Africa

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Inequality is increasing… why? (5)

A

Change in industrial structure
Higher returns to education or skill premium because of technology progress
Urban/rural and regional divergences
Demographic changes e.g older people less money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Factor/functional income distribution

A

Factors of production-
Labour income share vs capital income share

Labour income share is 60% of total income currently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Factor/functional distribution diagram

A

Y axis- Wage rate (r)
X axis- Employment

Supply curve- supply of labour
Demand curve- demand for labour (MPL)

The higher triangle=profits (same spot as consumer surplus)

Lower square=total wage bill (where producer surplus is)

17
Q

Note: labour share of income has fallen

A
18
Q

Global income distribution: two dimensions

A

Within-country inequality
Between-country inequality

19
Q

3 approaches to global income distribution

A

Unweighted international inequality (country means)

Weighted international inequality (adjusted for population)

True global inequality.

20
Q

Gini coefficient for global inequality

A

0.70

About 9% of richest world population receive half of global income

Bottom 50% receives 6.6% of total income

Top 1% receives 13% of total income