4.2.2 - Inequality

Question 1

What Are The 2 Forms Of Inequality?

Answer 1

~ Income inequality.

~ Wealth inequality.

Question 2

What Is Income Inequality?

Answer 2

Unequal distribution of incomes, to households.

Question 3

What Is Wealth Inequality?

Answer 3

Unequal distribution of wealth, between a population.

Question 4

What Are Measures Of INCOME Inequality?
(2 Points)

Answer 4

~ Lorenz curve.

~ Gini coefficient.

Question 5

Draw & Explain The ‘Lorenz Curve’, As A Measure Of Income Inequality
(2 Points)

Answer 5

~ Shows perfect income equality -> Straight line.

~ Shows income inequality -> curved line.

Question 6

If There Is Less Income Inequality In A Country, What Happens To The Lorenz Curve?
(2 Points)

Answer 6

~ Lorenz curve, would be closer to the perfect income equality line.

~ Meaning a country has more equal incomes.

Question 7

If There Is More Income Inequality In A Country, What Happens To The Lorenz Curve?
(2 Points)

Answer 7

~ Lorenz curve, would be further from the perfect income equality line.

~ Meaning a country has less equal incomes.

Question 8

Describe The ‘Gini Coefficient’, As A Measure Of Income Inequality
(4 Points)

Answer 8

~ Derived, from the Lorenz curve.

~ A / A + B.

~ Between 0 and 1.

~ Higher the figure, the higher the income inequality.

Question 9

How Is The Gini Coefficient Calculated?

Answer 9

A / A + B.

Question 10

What Are The Factors Influencing Inequality?
(5 Points)

Answer 10

~ Minimum wage rates.

~ Assortative mating.

~ Social benefits and tax.

~ R > G hypothesis.

~ Inheritance.

Question 11

Describe ‘Minimum Wage Rates’ As A Factor Influencing Inequality

Answer 11

Introducing NMW, increases costs for businesses, reducing their profits, manager receive lower incomes, decreasing income inequality. Vice versa.

Question 12

Describe ‘Assortative Mating’ As A Factor Influencing Inequality

Answer 12

When successful women, marry successful men, having kids together, meaning their kids are offered the best case scenario for everything, making the rich richer, worsening equality.

Question 13

Describe ‘Social Benefits & Tax’ As A Factor Influencing Inequality
(2 Points)

Answer 13

~ Using progressive taxes, improving income equality.

~ Tax revenue collected, can be further spent on welfare benefits, improving income equality.

Question 14

Describe ‘R > G Hypothesis’ As A Factor Influencing Inequality

Answer 14

People who have assets, can use them, to gain more assets, increasing wealth, therefore increasing wealth inequality. Vice versa.

Question 15

Describe ‘Inheritance’ As A Factor Influencing Inequality

Answer 15

Inheritance gives people wealth, they can use this wealth to gain more wealth, then pass it to their kids, increasing wealth inequality.

Question 16

What Are Capitalists?

Answer 16

People who own and use FOPs, to make more profit.

Question 17

What Is Capitalism?
(2 Points)

Answer 17

~ An economy, with capitalists in it.

~ E.g. Free market economy.

Question 18

How Does Capitalism, Increase Economic Growth?

Answer 18

Investment into the economy, leads to increased AD, creating positive multiplier effects.

Question 19

How Does Capitalism, Increase Income & Wealth Inequality?
(3 Points)

Answer 19

~ Business owners pay themselves large wages, and other less, leading to income inequality.

~ r > g hypothesis sets in, leading to wealth inequality.

~ Creates winners and losers.

Question 20

What Is The Benefit Of Inequality?

Answer 20

Incentivises individuals, to take risks and to gain higher skills.

Question 21

How Does Inequality, Limit Economic Growth?

Answer 21

Decreased wages, means less investment, means less AD, meaning less economic growth and living standards.