4.2.2 Inequality

Question 1

4.2.2a
Wealth Inequality

Answer 1

differences in the ownership of valuable assets like property or shares.

Question 2

4.2.2a
Income Inequality

Answer 2

some people earn much more than others through wages, dividends or rent.

Question 3

4.2.2a
Link between income and wealth inequality

Answer 3

High income = buying more assets = increasing wealth

Question 4

4.2.2b
Measuring Income Inequality

Answer 4

• Gina Coefficient
• Lorenz Curve

Question 5

4.2.2b
Lorenz Curve

Answer 5

• 45° line = perfect equality
• further away = more inequality as small % of households own a large % of income

Question 6

4.2.2b
Gini Coefficient

Answer 6

• area between Lorenz cure + perfect equality line
• 0.0 = perfectly equal
• 1.0 = perfectly unequal e.g 1 person has ALL the income

Question 7

4.2.2c
Causes of Inequality

Answer 7

1. Education:
   
   2. Healthcare:
   3. Corruption:
   4. Inheritance & Wealth Accumulation:
   5. Subsistence Trap:

Question 8

4.2.2c
Causes of Inequality : Education

Answer 8

→ High education = higher productivity (MRP theory),
→ which leads to higher wages,
→ but if education is inaccessible, inequality worsens.

Question 9

4.2.2c
Causes of Inequality : Healthcare

Answer 9

→ Healthy people work and earn income,
→ but poor access to healthcare limits earning potential,
→ increasing income inequality.

Question 10

4.2.2c
Causes of Inequality : Corruption

Answer 10

→ Elites may extract national wealth for personal gain,
→ leading to income/wealth concentrating at the top,
→ while public services remain underfunded, harming the poor.

Question 11

4.2.2c
Causes of Inequality : Inheritance & Wealth Accumulation

Answer 11

→ Assets passed down grow in value (e.g. rising house prices),
→ increasing wealth/income for those with inheritance,
→ while those without stay excluded.

Question 12

4.2.2c
Causes of Inequality : Subsistence Trap

Answer 12

→ In early-stage economies, all time is spent producing to survive,
→ leaving no surplus for investment,
→ which keeps people in poverty and out of school/workforce development,
→ widening gaps between rural vs urban and developed vs developing areas.

Question 13

4.2.2d
Impact of development on Inequality

Answer 13

1. Escaping the Subsistence Trap
2. Government Expenditure:
3. Welfare Systems:
4. Trickle-down Economics:
5. Progressive Taxation:
6. Minimum & Maximum Wages:
7. Price Controls on Essentials:

Question 14

4.2.2d
Impact of development on Inequality : Escaping the Subsistence Trap

Answer 14

→ Producing a surplus allows for trade and specialisation,
→ which creates jobs, incomes, and reduces inequality between/within countries.

Question 15

4.2.2d
Impact of development on Inequality : Government Expenditure

Answer 15

→ Investment in education, healthcare and infrastructure raises productivity,
→ enabling greater employment and access to services,
→ helping poorer groups catch up with wealthier ones.

Question 16

4.2.2d
Impact of development on Inequality : Welfare Systems

Answer 16

→ Provide income support to unemployed or low-income households,
→ reducing the income gap.
→ But can cause a ‘benefits trap’ where work incentives fall.

Question 17

4.2.2d
Impact of development on Inequality : Trickle-down Economics

Answer 17

→ Tax cuts for the rich may encourage job creation and spending,
→ possibly boosting incomes for the poor – but effects are uncertain and unequal.

Question 18

4.2.2d
Impact of development on Inequality : Progressive Taxation

Answer 18

→ Higher earners pay a higher % of income in tax,
→ which can fund redistribution (e.g. via welfare or public goods),
→ reducing inequality.

Question 19

4.2.2d
Impact of development on Inequality : Minimum & Maximum Wages

Answer 19

→ Minimum wage raises the lowest incomes and reduces wage inequality,
→ but may cause unemployment if set above equilibrium.
→ Maximum wage limits the earnings of the top to reduce income spread.

Question 20

4.2.2d
Impact of development on Inequality : Price Controls on Essentials

Answer 20

→ Setting max prices for necessities ensures affordability,
→ but can cause shortages due to lower producer incentives.

Question 21

4.2.2e
Define Capitalism

Answer 21

private ownership of resources and price-setting through market forces

Question 22

4.2.2e
Significance of Capitalism on Inequality

Answer 22

→ In a capitalist system, high-income individuals can afford more and better services,
→ while low-income individuals are priced out, increasing inequality

Question 23

4.2.2e
Capitalist Argument for Inequality

Answer 23

• Inequality creates incentives:
→ Higher wages attract workers to train for in-demand jobs,
→ boosting productivity and economic growth

•	Capital accumulation is essential for job creation: → Without profit, there’s no reason to invest and hire, → so even if workers earn less than owners, inequality can be justified by job creation.

Question 24

4.2.2e
Criticism of Capitalism

Answer 24

• Capitalists exploit workers by paying low wages relative to profits,
→ widening inequality.
• Scarcity of skills creates wage gaps among workers too,
→ increasing inequality within the labour force.