Wealth and Income Inequality Flashcards

1
Q

Give 4 different types of policies that could be used to alleviate poverty and income inequality

A
  • 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
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2
Q

Explain how lowering taxes could alleviate poverty and income inequality

A
  • encourages greater investment and consumption
  • leads to the multiplier effect and provides greater jobs for low income households
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3
Q

Analyse how doing nothing could alleviate poverty and income inequality

A

incentivises people to enter the workforce by reducing the opportunity cost of losing benefits and leisure time

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4
Q

Referring to allocative efficiency, explain why doing nothing may not be a good policy to alleviate poverty and income inequality

A
  • 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
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5
Q

What is your 2 points of conclusion/evaluation for the policy of doing nothing / cutting taxes?

A
  • 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
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6
Q

Analyse how increased direct tax and increased welfare payments can alleviate poverty and income inequality

A
  • 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
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7
Q

What is the main problem with increased direct tax?

A
  • 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
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8
Q

Define income

A

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

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9
Q

Define wealth

A

a store of money of value which is measured at a particular moment in time

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10
Q

Define inequality

A

individuals, households or communities having a disproportionate amount of wealth and income

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11
Q

Define inequity

A

where individuals, households or communities are treated unfairly/unjustly in some way

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12
Q

Briefly describe an egalitarian’s view

A

everyone should have equal opportunities so we should redistribute wealth

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13
Q

Briefly describe a libertarian’s view

A

people have the right to the fruits of their labour and it shouldn’t be taken

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14
Q

What does the Lorenz curve show?

A

an economy’s relationship between cumulative income distribution and cumulative population distribution

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15
Q

Describe, in words, how the Gini coefficient is calculated

A

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

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16
Q

If there was a perfectly equal income distribution in an economy, what would be the value of the Gini coefficient?

A

0

17
Q

If one individual had 100% of a country’s wealth, what would be the value of the Gini coefficient?

A

1

18
Q

What is a drawback of the Gini coefficient, what doesn’t it show?

A

it doesn’t show the distribution for certain groups and regions

19
Q

What is the Gini coefficient of the UK?

A

0.34 or 34%

20
Q

What is the Gini coefficient of Brazil?

A

0.55 or 55%

21
Q

Both income and wealth are mutually…

A

mutually reinforcing

22
Q

List 4 factors that could lead to wealth and/or income inequality

A
  • differing levels of education
  • wage differentials
  • ownership of financial assets
  • discrimination
  • location/region
  • age
23
Q

Give an example showing the relationship between wealth and income

A
  • owning a stock (an asset = wealth); receive dividend payment (=income)
  • owning property (an asset = wealth); receive rent (=income)
24
Q

Explain how wage differentials are a cause of wealth and/or income inequality

A
  • individuals have different skills and knowledge
  • different MRPs
  • different supply and demand of labour
  • different wage rates
25
Q

State why employees who are older may receive higher wages than those who are younger

A
  • more skills and more experience (higher MRP)
  • potential discrimination against younger people
26
Q

State why employees who are nearing retirement age may receive lower wages than those who are younger

A
  • may be less productive, slower and less motivated
  • reduced MRP
27
Q

List 4 types market failures which could lead to income or wealth inequality

A
  • missing markets in education and training
  • geographical factor immobility
  • information failure
  • under-consumption of merit goods
28
Q

Explain how missing markets in education and training could lead to wealth and/or income inequality

A
  • different groups acquire different levels of skill
  • leading to misallocation of education and training resources
  • worsens inequality