3.6.4 Re-distribution of income and wealth

Question 1

What is income

Answer 1

Income is a flow concept and can be generated from assets but the most common form of income is a persons wage/salary.

Question 2

What is wealth?

Answer 2

Wealth looks at the value of assets an individual owns and is a stock concept. Income may be geenrated from wealth.

Question 3

What is the poverty trap?

Answer 3

Any mechanism which casues low income households to remain below the poverty line and not be able to get out of poverty. A reason for this may be because of a lack of incentive and where low income households believe they are better off remaining on unemployment benefits. Therefore this leads to them to continue to be unskilled and further reducing their potential in the long run to increase their human capital and leave the poverty trap/cycle.

Question 4

As a result what are some incentives?

Answer 4

The government try to increase the incentive for lower income households such as reducing the income tax and increasing thresholds so greater tax free incomes e.t.c increase to £12,570. Or the introduction of universial credit. Or opening up of training/ apprenticiship schemes to help the educations and skills making human capital development more accesible.

Question 5

How do the goverenment try to reduce inequality

Answer 5

Progressive tax system as well as the provision of services such as the NHS and free education