Wealth And Income Inequality

Question 1

What is wealth and income?

Answer 1

Wealth is a stock concept, the value of assets or bonds

Income is the amount of money a person receives per time period

Question 2

Why is wealth inequality normally greater than income inequality? (5)

Answer 2

1. Those on low incomes can’t save and increase wealth
2. Those who are wealthy and own a house can rent
3. Wealth can be inherited, income cannot
4. Wealth inequality between homeowners and not
5. Taxes on income tend to be higher than wealth

Question 3

Is inequality necessary? (2)

Answer 3

1. Without an incentive of higher wage, enterprise would be limited.
2. Policies to reduce inequality may create disincentives to work

Question 4

Problems of inequality (4)

Answer 4

1. Exploitation
2. Social friction-
3. Diminishing marginal utility of money
4. Inequality of opportunities

Question 5

How is exploitation a negative of inequality?

Answer 5

Monopolies can earn profits at the expense of others

Question 6

How does diminishing utility of money come about from inequality?

Answer 6

Tax from high income earners won’t make a difference compared to low income earners

Question 7

How can economic growth increase inequality? (4)

Answer 7

1. Demand for skilled labour opposed to unskilled
2. Regional inequality as some places have more inequality than others
3. Monopsony power enables capitalists to own profits and not share
4. Lead to increased living costs

Question 8

How can economic growth improve inequality? (5)

Answer 8

1. Leads to higher tax revenues for welfare state
2. Increase real wages as firms compete for workers
3. More choice for workers
4. Policies can be pursued lie minimum wage
5. Growth in trade union increase real wages