Wealth and Income Inequality Flashcards
Give 4 different types of policies that could be used to alleviate poverty and income inequality
Do nothing / cut tax
Increase direct tax and welfare payments
Impose/increase national minimum wage
Raise tax free income threshold
Invest in education and training
Explain how lowering taxes could alleviate poverty and income inequality
Encourages greater investment and consumption
Leads to the multiplier effect and provides greater jobs for low income households
Analyse how doing nothing could alleviate poverty and income inequality
Incentivises people to enter the workforce by reducing the opportunity cost of losing benefits and leisure time
Referring to allocative efficiency, explain why doing nothing may not be a good policy to alleviate poverty and income inequality
Some argue JSA is necessary to support people while they look for work more suited to their skills
This causes more allocative efficiency rather than jumping into the first job available
What is your 2 points of conclusion/evaluation for the policy of doing nothing / cutting taxes?
At least provide sufficient welfare to cover the basic needs and provide education and healthcare to give people the same opportunities
Perhaps make it a little more difficult to claim JSA instead - ex: must provide evidence you are in training or applying for jobs
Analyse how increased direct tax and increased welfare payments can alleviate poverty and income inequality
People on higher wages derive less utility from the money you tax so more utility is gained overall
Lower income households have a higher MPC so this will stimulate demand
Meets basic needs of all people in society
What is the main problem with increased direct tax?
Poverty trap - opportunity cost of losing benefits and leisure time outweighs wage gained from entering work
Tax disincentivises investment and people aspiring for higher paid roles
Define income
A flow of money, usually received in payment for factors of production, and is recorded for an individual or household over a given period of time
Define wealth
A store of money of value which is measured at a particular moment in time
Define inequality
Individuals, households or communities having a disproportionate amount of wealth and income
Define inequity
where individuals, households or communities are treated unfairly/unjustly in some way
Briefly describe an Egalitarian’s view
Everyone should have equal opportunities so we should redistribute wealth
Briefly describe a libertarian’s view
People have the right to the fruits of their labour and it shouldn’t be taken
What does the Lorenz curve show?
An economy’s relationship between cumulative income distribution and cumulative population distribution
Describe, in words, how the Gini coefficient is calculated
By dividing the area between the line of perfect equality and the Lorenz curve for a country by the total area under the line of perfect equality
If there was a perfectly equal income distribution in an economy, what would be the value of the Gini coefficient?
0
If one individual had 100% of a country’s wealth, what would be the value of the Gini coefficient?
1
What is a drawback of the Gini coefficient, what doesn’t it show?
It doesn’t show the distribution for certain groups and regions
What is the Gini coefficient of the UK?
0.34
What is the Gini coefficient of Brazil?
0.55
Both income and wealth are mutually…
mutually reinforcing
List 4 factors that could lead to wealth and/or income inequality
Differing levels of education
Wage differentials
Ownership of financial assets
Discrimination
Location/region
Age
Give an example showing the relationship between wealth and income
Owning a stock (an asset = wealth); receive dividend payment (=income)
Owning property (an asset = wealth); receive rent (=income)
Explain how wage differentials are a cause of wealth and/or income inequality
Individuals have different skills and knowledge
Different MRPs
Different supply and demand of labour
Different wage rates
State why employees who are older may receive higher wages than those who are younger
More skills and more experience (higher MRP)
Potential discrimination against younger people
State why employees who are nearing retirement age may receive lower wages than those who are younger
May be less productive, slower and less motivated
Reduced MRP
List 4 types market failures which could lead to income or wealth inequality
Missing markets in education and training
Geographical factor immobility
Information failure
Under-consumption of merit goods
Explain how missing markets in education and training could lead to wealth and/or income inequality
Different groups acquire different levels of skill
Leading to misallocation of education and training resources
Worsens inequality
