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Y2 Microeconomics > Week 18 & 19 > Flashcards

Week 18 & 19 Flashcards

1
Q

income definition

A

represents the flow of money that an individual or household receives within a given period

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2
Q

3 examples of income (a flow of money)

A
  • salary
  • welfare benefits
  • company dividends
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3
Q

wealth definition

A

the stock value of all the assets that an individual or household owns at a point of time

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4
Q

3 examples of wealth (stock of value)

A
  • property
  • shares and bonds
  • pension
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5
Q

explain how income and wealth are like recurring circle

A

as income grows, individuals are in a better position to purchase assets
then some assets can provide individuals with a top up of their income

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6
Q

equality of outcomes definition

A

how evenly distributed the income and wealth of a country is across society

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7
Q

equity of outcomes definition

A

how fairly distributed the income and wealth of a country is across society

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8
Q

what is a difference between equality and equity of outcomes

A

equality of outcomes has a clear objective view and can be shown statistically

whiles equity of outcomes is a subjective view which is dependent on the person forming the viewpoint

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9
Q

what are 4 factors that influence the distribution of income in the uk

A
  • ownership of factors of production (e.g land)
  • Pay differentials in labour markets (e.g wage difference between a manager and a cleaner)
  • international factors - globalisation
  • difference in income sources (earned vs unearned income)
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10
Q

how does globalisation influence the distribution of income in the uk

A
  • job outsourcing (jobs moving to cheaper regions in the world
  • international migration (excess supply of labour causing cheaper wages)
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11
Q

what are 4 factors that influence the distribution of wealth in the uk

A
  • asset prices increase
  • inheritance
  • private pension pots
  • tax loopholes
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12
Q

what are the 2 ways of measuring inequality in an economic system

A
  • lorenz curve (graphical representation of inequality
  • Gini coefficient (statistical representation of inequality)
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13
Q

how does the lorenz curve represent inequality

A

helps visualise the state of inequality in an economic system relative to a system of complete equality

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14
Q

how does the Gini coefficient represent inequality

A

provides a simple index figure that can be compared across time and countries

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15
Q

lorenz curve definition

A

A graph which indicates income inequality by plotting the cumulative % of total national income against the cumulative % of the corresponding population

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16
Q

How do you plot a lorenz curve to measure inequality

A

need cumulative % of population - split the population into 10 even segments (10 percentiles)

need cumulative % total of income - 100% would be the total cumulative income then work backwards from there

17
Q

line of equality definition

A

line of equality represents the lorenz curve when all population segments earn the same share of income

18
Q

is the line of equality a realistic situation for an economic system

A

no because
- wage differentials
- ownership of assets
- impact of migration
- impact of globalisation

19
Q

How do we interpret the lorenz curve

A

the focus is on the gap between the line of equality and the curve

  • the greater the gap the greater the inequality
20
Q

is there a way of measuring how evenly distributed a country’s income is precisely

A

Yes

Gini Coefficient

21
Q

Gini Coefficient definition

A

a statistical measure of the level of income inequality in an economy calculated by analysing the size of any inflexion in the lorenz curve

22
Q

How do you calculate the Gini Coefficient

A

name the area between the lorenz curve and line of equality > A
name the complete area under the line of equality > B

calculation: Area A / Area B = Gini coefficient

23
Q

How is total equality shown by the Gini coefficient

A

when total equality = 0
Area A = 0

24
Q

how is total inequality shown by the Gini coefficient

A

total inequality = -1
Area A = Area B

25
Q

what are the 2 approaches to tackling ineqaulity

A
  • interventionist approach
  • free market approach
26
Q

interventionist approach to tackling inequality

A

inequality is a barrier to growth

Policies directly aimed at redistributing income away from the rich and to the poor

27
Q

free market approach to tackling income inequality

A

inequality is a by-product of growth

Policies which may increase inequality in the short-run to create opportunity to reduce inequality in the long-run

28
Q

how does interventionist approach redistribute income

A

> high taxes for high earners provides the government with more tax rev
–> this can then be re-distributed to the poor to increase purchasing power
—–> this generates higher levels of growth and increases welfare for all

because low income earners are the driving force behind consumption growth

29
Q

what do supporters of free market believe about the interventionist approach

A

that it is not sustainable

as free market believe in redistributing income in the long run and in a sustainable way

30
Q

how does the interventionist approach disincentivise work and cause potential unemployment

A

high income earners - taxed more so incentive to work harder is put off by higher taxes > reduces entrepreneurial activity

low income earners - the incentive to become employed is put off by more generous welfare payments > reduces size of workforce

31
Q

what does the free market approach to income distribution specifically tell us

A

the tax and benefits system should be structured to increase people incentives to get back into work

32
Q

what is a negative of the free market approach to income distribution

A

due to aiming for long-run solutions and sustainability

it may mean in the short-run inequality has to get worse before it gets better

Y2 Microeconomics (16 decks)

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