1.7 the distribution of income and wealth: poverty and inequality

Question 1

absolute poverty

Answer 1

when a person doesn’t have enough income to fulfil basic needs

Question 2

distribution of income and wealth

Answer 2

the way in which total income and wealth are divided among the population of the economy

Question 3

earnings trap

Answer 3

situations where the more an individual earns, the less they are entitled to, making it hard to escape poverty

Question 4

equity

Answer 4

fairness, justness

involves value judgements

Question 5

fiscal drag

Answer 5

as wages rise, a higher proportion of income is paid in tax

Question 6

gini coefficient

Answer 6

measures income or wealth inequality; maximum inequality is 1

Question 7

horizontal equity

Answer 7

people in identical circumstances are treated equally

Question 8

hysterisis

Answer 8

effects that persist even after the initial causes giving rise to the effects are removed

Question 9

kuznets hypothesis

Answer 9

theory that as an economy grows, inequality is initially increased, then decreased

Question 10

lorenz curve

Answer 10

can be used to illustrate and measure distributive inequalities

Question 11

means tested benefits

Answer 11

entitlement to certain benefits depends on whether the income or wealth of an individual is below a certain level

Question 12

poverty trap

Answer 12

where a rise in income leads to a decrease in eligibility in benefits, forcing individuals deeper into poverty

Question 13

vertical equity

Answer 13

people in different circumstances are treated unequally, yet fairly

Question 14

real life example of effects of poor education

Answer 14

in Madagascar in 1975, the president Ratisaraka decided that he no longer wanted French to be the spoken language in Madagascan classrooms

he wanted Malagasy to be the spoken language instead

he banished all French teachers

‘The Lost Generation’ - students who barely learnt anything

most of the well-paying jobs required French to be spoken

Malagasy speakers had to take extremely low paying jobs

Question 15

consequence of a fall in the standard of education

Answer 15

fall in the standard of education

an increase in unemployment

incomes fall

increase in absolute poverty

Question 16

effects of good education

Answer 16

increase in skills

increase in productivity

increase in demand for higher salaries

fall in relative poverty

Question 17

effects of education and training

Answer 17

increase in productivity

increase in income

decrease in poverty

Question 18

the world bank’s definition of absolute poverty

Answer 18

living below the absolute poverty line of $1.90 a day at 2005 GDP measured at purchasing power parity

Question 19

purchasing power parity

Answer 19

how much of one currency is needed to purchase a basket of goods compared to another currency

Question 20

in 2013 how many people were estimated to be living in absolute poverty

Answer 20

767 million people

over 96% of these people were in developing countries

Question 21

what is relative poverty defined as in the UK?

Answer 21

<60% median income in the UK

average income in the UK is £27,000

poverty line is £16,320

Question 22

factors that influence poverty rates

Answer 22

economic growth

leadership

deworming children

fighting domestic violence

free school meals

women’s rights

planting trees

mosquito nets

Question 23

example of how infrastructure in India helped reduce poverty

Answer 23

improvements in telecommunications in India like new fibreoptic cables and tall cellular radio towers have allowed India’s call centre industry to flourish

hiring more workers

raising income

lifting Indian workers out of poverty

Question 24

possible limitation of providing AID to help reduce poverty with example

Answer 24

aid money could go into corrupt politician’s pockets

in 2011 Somalia received $1.3bn in aid

70% of the aid had ‘disappeared’ and went into corrupt politician’s pockets instead

there was little to spend on healthcare and schools, workers couldn’t become more productive

poverty stayed the same

Question 25

example of UK providing foreign aid

Answer 25

in 2018 UK donated £374m aid to Pakistan in 2018 spent majority of aid on healthcare and education better education - better knowledge and skills better healthcare- increased health, workers can work longer and concentrate more can command higher salaries as more productive Pakistan's GDP rose by over $100 higher salaries lead to a decrease in povertyn

Question 26

negative externalities

Answer 26

costs which affect third parties outside the price mechanism

Question 27

social costs

Answer 27

private costs + external costs costs to everyone in society

Question 28

private costs

Answer 28

costs to group inside price mechanism

Question 29

external costs

Answer 29

costs to group outside price mechanism

Question 30

negative externalities of production

Answer 30

SC>PC goods are being overproduced when there are negative externalities as more is being produced than what benefits society

Question 31

negative externalities of consumption

Answer 31

PB>SB more is being consumed than what is best for society demand decreases if you take into account social benefits

Question 32

how can the government stop overconsumption or overproduction?

Answer 32

by intervening with a tax could be direct or indirect

Question 33

complete market failure

Answer 33

when the market wouldn't exist without government intervention only seen in certain public goods market completely fails to provide a public good at all

Question 34

partial market failure

Answer 34

market exists but doesn't work perfectly e.g. market for education some education is provided but too little is consumed

Question 35

7 types of market failure

Answer 35

negative and positive externalities public goods information gaps merit and demerit goods monopoly power factor immobility inequitable distribution of income and wealth

Question 36

3 types of market imperfections

Answer 36

information gaps monopoly power factor immobility

Question 37

merit goods

Answer 37

goods that are under-consumed, have positive externalities and information gaps

Question 38

example of a merit good

Answer 38

education is under-consumed because of information gaps don't have full information about the benefits individuals who apply for university only consider the private benefits and ignore all social benefits such as an increase in tax revenue for the government

Question 39

demerit goods

Answer 39

goods that are overconsumed, have negative externalities and information gaps

Question 40

example of a demerit good

Answer 40

cigarettes passive smoking can lead to lung cancer younger consumers aren't informed of full health costs

Question 41

value judgements

Answer 41

an evaluative statement of how good or bad you think an idea or action is

Question 42

how could alcohol be deemed as having positive externalities?

Answer 42

e.g. a sober person having more fun at a party because other people are drunk they are outside the price mechanism

Question 43

imperfect information

Answer 43

consumers or producers lack information needed to make an informed decision more information closes the information gap

Question 44

types of imperfect information

Answer 44

incomplete information asymmetric information

Question 45

incomplete information

Answer 45

when someone doesn't have full information about the benefits or costs of their decisions e.g. 7 year old child can't see long run benefit of education 40% of young adults without GCSE's are unemployed

Question 46

asymmetric information

Answer 46

when one party knows more than another party in a transaction e.g. buying a phone on ebay, could get ripped off and waste money

Question 47

how can the government solve underconsumption?

Answer 47

regulation e.g. legally requiring students to stay in education till age 18 information provision providing info on the benefits of education subsidies subsidising tuition fees supply increases, price decreases

Question 48

how can the government solve overconsumption?

Answer 48

regulation e.g. legally banning public smoking information provision e.g. adverts on the costs of smoking indirect taxes e.g. specific taxes of cigarettes, increases price and decreases quantity demanded

Question 49

how taxation can reduce negative consumption externalities

Answer 49

can be solved through an indirect tax paying indirect tax would increase costs for producers because they'd have to pay an extra tax to the government on top of all their other production costs producers will respond with an inward shift of the supply curve as they are willing to supply less for the same price

Question 50

how can minimum prices reduce overconsumption

Answer 50

min price introduced prices are higher QD is lower overconsumption is reduced

Question 51

disadvantage of minimum prices

Answer 51

only works if price is set above equilibrium price otherwise overconsumption won't decrease

Question 52

social benefit

Answer 52

external benefits + private benefits

Question 53

market failure

Answer 53

when price mechanism leads to a misallocation of resources

Question 54

geographical immobility

Answer 54

barriers faced by people moving from one area to another to find work worker will stay unemployed which is a market failure

Question 55

occupational immobility

Answer 55

lack necessary skills to have job

Question 56

what does occupation immobility lead to?

Answer 56

structural unemployment

Question 57

why do labour markets fail?

Answer 57

factor immobility

Question 58

how can the government fix occupation immobility?

Answer 58

education training apprenticeship schemes

Question 59

how can the government intervene to fix geographical immobolity?

Answer 59

improving transport e.g. HS2 relocation subsidies to help cover the costs of moving