4.2.2. Inequality Flashcards
(20 cards)
What are the two different types of inequality?
- Income inequality
- Wealth inequality
What is income inequality?
Refers to the unequal distribution of income to households e.g. rent, wages, interest and profit
What is wealth inequality?
Refers to differences in the amount of assets that households own
How are Income and Wealth Inequality different?
Wealth-net worth/ total assets e.g. houses, land, cars, bonds, stocks, savings, businesses, inheritance
Income-How much people earn usually in year and how its distributed unequally e.g. salary/wages, interest from savings, profits from a business
In this example who has higher income and who has more wealth?
Person A earns $50,000 a year and has $500,000 in savings and property.
Person B earns $60,000 a year but has no assets and is in debt.
Person B has a higher income but Person A has more wealth
What are the two main measures of income inequality?
- Lorenz Curve
- Gini Coefficient
What is the Lorenz Curve?
Visual representation of the inequality that exists between households in an economy
In the Lorenz Curve what is data usually seperated into?
Data often separated into Quintiles (population divided into 5 groups i.e. 20%) or deciles (population divided into 10 groups i.e. 10%)
Is perfect income distribution the goal?
It isn’t the goal e.g. 20% of population get 20% of income and 40% of population get 40% of income. This would equate to socialism and completely remove incentives for work as everyone would be paid equally. More equal income distribution is desired as it reduces poverty and social unrest.
What does the Lorenz curve look like?
Slide 10
What does this graph show?
Shows that the red line country (Sweden) has a better income distribution than UK (green line)
What does the black line on the graph show? (Slide 10)
Line of equality represents perfect income distribution but this isn’t desirable
What is the Gini Coefficient?
Measures the distribution of income in a population. The closer the value to 1 the worse the income inequality
What is the equation for the Gini Coefficient?
A/ (A+B)
What does the Gini Coefficient look like? What does it all mean?
Slide 11
What are the causes of Income and Wealth Inequality?
- Education, Training and Skills- Higher skill level=higher income. Country with poor education will have greater inequality than one with a good education system
- Trade Unions- Countries with strong TU membership = tend to have higher levels of income. Low TU membership= exploitation of workers and so lower wages
3.Benefit System- Countries that provide range of benefits= raise income of lowest 20%= more equal distribution
4.Pension Payments-Ensure min standard of living= more equal distribution - Wage Rates- NMW= improve distribution of income
- Employment Legislation-More protected by law
- Tax Structure-Progressive tax system=smaller income distribution
- Asset Ownership- Assets generate income. Asset ownership more equal=more equal income
What is the Kuznets Curve?
How income inequality changed as an economy went through different stages of industrialisation and development.
Industrialisation= increased inequality as some workers move to higher productivity getting paid more and leaving others to be paid less.
However, at some point inequality starts to decrease most likely due to gov intervention/ support
What does the Kuznets Curve look like?
Slide 12
What is Capitalism and what type of market is it?
Capitalism is an economic system based on private ownership of means of production and operation for profit. It is at the heart of free markets.
With the economic system of Capitalism is Inequality more or less present?
Inequality is inevitable. This is because workers with higher skills receive higher wages. Workers with little skills receive little to no wage. Those with higher income will acquire more assets leading to higher levels of income. Those with lower income will find it hard to acquire assets
