Inequality

Question 1

What is economic inequality?

Answer 1

The difference in economic wellbeing between people within society.

Question 2

What is wealth inequality?

Answer 2

The unequal distribution of assets in a society.

Question 3

What is wealth?

Answer 3

The value (in money) of assets held by an individual.

Question 4

What is income?

Answer 4

The amount of money a person receives over a period of time, e.g. a month, week or year.

Question 5

What are 3 examples of a source of income?

Answer 5

Wages, salaries, interest on bank accounts, dividends from shares, rental income, etc.

Question 6

What are 3 examples of a source of wealth?

Answer 6

Property, land, money, shares, etc.

Question 7

What is income inequality?

Answer 7

The unequal distribution of income in a society.

Question 8

What are 6 influences on inequality?

Answer 8

1) Education and training.
2) Taxation.
3) Trade union representation.
4) Wage rates.
5) Ownership of assets.
6) Social benefits.

Question 9

How can education/training influence inequality?

Answer 9

Access to training and education is not equally accessible in different nations/regions, potentially leading to both income and wealth inequality.

Question 10

How can wage rates influence inequality?

Answer 10

Certain skills are more desirable within an economy, meaning those with said skills will command a higher wage/ salary, leading to potential income inequality, and later, wealth inequality.

Question 11

How can asset ownership influence inequality?

Answer 11

Historically, the wealthiest in society own the most assets (land, property, etc.) which are passed down through generations. These assets generate further income and wealth, increasing inequality.

Question 12

How can social benefits influence inequality?

Answer 12

Government policy, such as welfare benefits, can influence the extent to which vulnerable people in society are protected from poverty.

Question 13

How can trade union representation influence inequality?

Answer 13

The strength of trade unions will influence the level of employment protection, and therefore income inequality.

Question 14

How can taxation influence inequality?

Answer 14

Tax systems are used to redistribute income. More progressive tax systems providing tax relief for the poorest, whilst ensuring the wealthiest contribute more, reducing income inequality.

Question 15

What are 4 negative impacts of high levels of inequality?

Answer 15

1) Absolute and relative poverty remain high.
2) The poorest in society will find it difficult to generate the capital necessary to start a business, restricting economic growth.
3) As the rich become richer, often, the higher their marginal propensity to import. This is a withdrawal from the circular flow of income and does not benefit the poorest in society.
4) Crime and violence tend to rise as people do not have what they need and become desperate.

Question 16

Explain the Lorenz curve (5).

Answer 16

1) Graphically represents the distribution of income.
2) On the Y-axis is the cumulative percentage of the population, from poorest to richest.
3) On the X-axis is the cumulative percentage of income.
4) The complete equality line has equation Y = X, whereby 10% of the population earn 10% of the income, 20% of the population earns 20% of the income, etc.
5) The Lorenz curve is the curved line below the complete equality line, with the further away it is from complete equality, the greater the inequality. E.g. if the Lorenz curve shows that the cumulative 90% earns 65% of the income, then the top 10% earn 35% of the income.

Question 17

What is the Gini coefficient?

Answer 17

A measure of inequality that uses the Lorenz curve to find a numerical representation of inequality.

Question 18

What is the formula for the Gini coefficient?

Answer 18

The area between complete equality and the Lorenz curve ÷ the area below complete equality.

Question 19

How can the Gini coefficient be represented (2)?

Answer 19

1) As a value between 0 and 1.
2) As an index value.

Question 20

Explain the numerical value of the Gini coefficient.

Answer 20

The higher the Gini coefficient, the more unequal the distribution of income.

Question 21

Explain the impact of economic development on inequality (2 stages)?

Answer 21

1) As an economy grows (especially a developing economy), workers will move from lower productivity sectors (e.g. agriculture) to the higher productivity manufacturing sector. Incomes will not increase at the same rate, increasing inequality.
2) Inequality will then begin to decline, as governments have a greater means to redistribute income, such as through benefits, progressive tax systems, investment in education/training, etc.

Question 22

What are 4 benefits of inequality in a free market economy?

Answer 22

1) Incentivises people to work harder to earn more.
2) Encourages enterprise, creating new businesses and employment opportunities.
3) Encourages people to work instead of claiming benefits.
4) Can create a ‘trickle-down’ effect, where as the rich become richer, they spend more on goods and services, creating income for the poor.