Define distribution of income
How income is divided between rich and poor
Define distribution of wealth
How wealth is divided between rich and poor
Difference between income and wealth
Income- Personal or household flow of money received in a particular period of time
Wealth- Personal wealth is the stock of everything that a person or household owns at a particular point in time which has value
Time difference of wealth and income
Income- Flow in a period
Wealth- Stock
Example of income and wealth
Income- Hourly rate for example
Wealth- Household for example
Why the rich get richer
Wealth increases income, allowing wealthy to save, saving adds to wealth and so on
Why the poor get poorer
Low income means borrowing, borrowing adds to personal debt, income is spent on debt repay and wealth disappears
Factors that influence the distribution of income
- Factors of production (large land gain more money)
- Unearned (interest and investment) and earned income
- Wage and salary differences
- Globalisation and international migration of workers (low paid workers in competition)
% of adults with no or negative wealth
15%
Factors affecting distribution of wealth
- Ability to benefit from capital gain (value of homes increasing for eg)
- Private pension assets
- Inheritance, gift, luck
- Wealth taxation is much lower than income taxation
Difference between equity and equality
Equity: when everyone is treated fairly
Equality: when everyone is treated the same
Can equality and equity he measure
Equality- can
Equity- cannot (normative concept)
How can we measure distribution of income and see if it is equal or not
Through Lorenz Curve and Gini coefficient
Difference between lorenz curve and gini coefficient
Lorenz curve is a graph to show how far distributed is from the line of complete equality
Gini coefficient measures the extent to which distribution of income within an economy deviates from perfect equal distribution
Draw the Lorenz curve
…
What is the gini coefficient equation
Area A (Between line of equality and lorenz curve) Area B (outside of lorenz curve)
Area A/ (Area A+ Area B)
What does a low value of gini coefficient show
more equal household distribution
Why would equal distribution of income cause economic growth
Because those wealthy save a lot so are not injecting into the economy
What is the pro-free market economists view of wealth and income should be equal
- No account of incentives
- Gov progressive taxation makes people want to work less
- Inequality causes people to want to work more
Define poverty
Not having enough money or income to meet basic need including food, clothing and shelter
Difference between absolute and relative poverty
absolute: severe deprivation of basic human needs
relative: when income is below average income (60% below)
Causes of poverty
- Old age (relying on state pension)
- Unemployment
- Low wages
Effects of poverty on the UK
- Educational deprivation
- Health deprivation
- Children in poverty are 2x more likely to live in bad housing
Ways of reducing poverty in the UK
- taxation
- benefits system
