3.3 Fair Distribution of Income

Question 1

what is the definition of income?

Answer 1

All payments received by an individual or household over time (e.g wages, rent)

Income is a flow variable

Question 2

What is the definition of wealth?

Answer 2

The market value of total stock of assets owned by an individual or household at a point in time (e.g car, house, bonds)

Question 3

what is the definition of income distribution?

Answer 3

income distribution measures how the total income of the economy is shared between its people

Question 4

What is the definition of income inequality?

Answer 4

This is when income is distributed in an uneven way between households

Question 5

What are 4 examples of income

Answer 5

• wages (labour)
• rent (landowners)
• Interest (lenders(
• profit

Question 6

What is the difference between gross and net income

Answer 6

gross income is before deducting tax and adding benefits, while net (disposable) income is after

Question 7

What is the general income distribution trend for the UK?

Answer 7

• generally the bottom 60% have 39% of income, while the top 40% have 61%
• clear income unequally distributed

Question 8

What is the general wealth distribution trend in the UK?

Answer 8

• the richest 10% own 45% of the wealth, while the poorest 50% own 8%
• distributed more unequally than income and can also depend on region

Question 9

What is the gini coefficient?

Answer 9

• It is a way of comparing how distribution of income in a society compares to another society where everyone earns the same
• uses the Lorenz curve

Question 10

What are the 4 causes of wealth inequality?

Answer 10

1. Savings
2. Inheritance
3. Property Ownership
4. Enterprise

Question 11

What are the 5 causes of income inequality?

Answer 11

1. Difference in Wages
2. Unearned income (comes from wealth)
3. Reliance on benefits
4. Age
5. Gender

Question 12

How can a difference in wages lead to income inequality + 1 EVAL

Answer 12

• low skilled jobs will more supply will mean wages and income are lower, higher skilled jobs with less supply means the wages and income is higher
• EVAL part time work has exacerbated the difference in earnings

Question 13

How can unearned income from wealth cause income inequality? + 1 EVAL

Answer 13

• workers who only earn a wage will earn less than those that earn wages and rent/interest, so they earn less those who also have savings or properties
• EVAL will depend on the level of wealth inequality in the country (large wealth inequality = large income inequality)

Question 14

How can reliance on benefits lead to income inequality? + 1 EVAL

Answer 14

• benefits are generally lower than wages, so those on benefits will earn much less than those with a wage
• EVAL depends on how many people are on benefits, a recession with more unemployment may lead to more inequality as more people are on benefits

Question 15

How can age cause an income inequality? + 2 EVAL

Answer 15

• young and old people tend to earn less, as young people make their way up the pay scale and old people are retired
• EVAL - young people will work their way up the pay scale and earn more, so this type of inequality is not as problematic
• EVAL - older people may not earn less if they have wealth and will be less affected by lower income

Question 16

How can gender cause an income inequality? + 1 EVAL

Answer 16

• families and workplaces are structure in a way that disadvantage women that take time off for children in a disproportionate way
• therefore they choose more flexible careers and advance their careers less meaning over their lifetime women earn less than men
• can also be discrimination
• EVAL depends on the industry they work in

Question 17

How can savings lead to a wealth inequality? + 1 EVAL

Answer 17

• high income earners can save more as consumption of necessities rakes less %of income then for lower income earners ad they will earn interest on these savings
• EVAL depends on income inequality

Question 18

How can property lead to wealth inequality? + 1 EVAL

Answer 18

• purchase of property leads to income for owners via rent or property value, poorer households cannot afford property and therefore do not have this
• EVAL depends on property price rise

Question 19

How can inheritance cause wealth inequality? + 1 EVAL

Answer 19

• some families can pass on considerable assets to offspring while others do not pass on anything
• EVAL - depends on family wealth and number of children

Question 20

How can enterprise cause wealth inequality + 1 EVAL?

Answer 20

• entrepreneurs that make businesses may be successful and the business may be worth millions, those without entrepreneurial skills are less likely to earn wealth
• EVAL - depends on how easy it is to start a business

Question 21

How can inequality lead to poor housing?

Answer 21

• lower income households will need to rent accommodation which may be of poor standard, and so they may face health issues and not be productive for the economy
• this is worse in developing countries where they may live in slums

Question 22

How can inequality lead to poor health?

Answer 22

• poorest in the society are most likely to have the worst health as they may have a less healthy diet or lifestyle and/or lack of access to healthcare
• worse in developing countries
• bad as less healthy population means smaller workforce and more on healthcare

Question 23

How can inequality lead to inequality of opportunity?

Answer 23

• the poorest often live in areas which have the worst standard of education, so it is harder for them to develop skills
• makes it difficult to break cycle of poverty especially in rural areas

Question 24

How can inequality lead to poverty and deprivation?

Answer 24

• some households will not be able to afford most things other households can, they may be in relative poverty
• this is worse in developing countries

Question 25

What are 2 evaluation points for consequences of inequality?

Answer 25

1. The consequences are less severe if the economy is growing steadily and real wages for poorer households are still rising
2. Depends whether the poor can access safety nets (e.g benefits), this will lessen spiral into absolute poverty

Question 26

How can raising the minimum wage lead to a decrease in inequality? + 2 EVAL

Answer 26

• mean that the lowest earners will earn more decreasing income inequality, so gap between earners will decrease
• EVAL - will not affect those on benefits
• EVAL - may lead to more unemployment as wages have increased meaning less demand

Question 27

How can increasing tax for top earners lead to less inequality + 2 EVAL

Answer 27

• higher income earners will have less net income, so the gap will decrease
• EVAL - may cause increased tax avoidance and evasion
• EVAL - could be more effective is tax revenue is used to boost benefits

Question 28

How can increasing benefits lead to less inequality? +2 EVAL

Answer 28

• decrease in inequality as it will lead to higher incomes for those on benefits, so gap between highest and lowest decreases
• EVAL - not affect those working
• EVAL - no incentive to move to work

Question 29

How would improving access to higher education for low-income families help reduce inequality? + 2 EVAL

Answer 29

• more workers from poorer backgrounds would be able to access higher paying jobs
• EVAL - opportunity cost to government funds
• EVAL - long time to implement