Income Distribution And Welfare Flashcards
(18 cards)
What is Income?
Flow of money over a period of time, it can be earned from various factors such as wages, interest, rent, and profit.
What does the Lorenz Curve illustrate?
Income and wealth distribution between countries
The Lorenz Curve shows the relationship between the percentage of income distribution and inequality.
The closer to the line of equality, the more equal the level of distribution of income
How is income inequality measured?
Lorenz curve and Gini coefficient
These tools help to visualize and quantify the level of inequality in income distribution.
What is the Gini Coefficient?
Ratio of the area between the Lorenz curve and the line of equality to the area underneath the line
A Gini Coefficient of zero indicates total equality, the closer to one the more inequality
What are the causes of poverty and income inequality?
Unemployment rates- high UE, ^poverty (structural and LT will widen income inequality)
Proportion of population claiming benefits
Deindustrialisation
labor productivity rates, skills and quality of the labor force
Occupational structure and mobility
High living costs
What is Absolute Poverty?
Situation where individuals have insufficient income to purchase basic necessities for survival
Define Relative Poverty.
Individuals have insufficient income to participate in the normal social life of a country, having an income level below 60% of median adjusted household disposable income
What are the consequences of poverty?
Underutilized resources, lower rate of growth, as people in the poverty trap lack incentive, economy missing out on there skills
Poverty results in allocative inefficiency, market failure
What is a poverty trap?
A situation where individuals in poverty lack incentives to improve their economic status as effects of tax or benefit system
This can result from underutilization of skills and resources.
What policies are used to reduce poverty?
Welfare and government redistribution
These policies can have an opportunity cost and may lead to government borrowing.
What is the impact of a large income gap on productivity?
Becomes a disincentive to increase productivity
A significant income gap can discourage individuals from striving for better economic outcomes.
Fill in the blank: The greater the income inequality, the greater the _______.
negative impact on economic growth
Income inequality can lead to various economic inefficiencies.
True or False: Policies aimed at reducing poverty can lead to increased entrepreneurship and innovation.
False
Such policies may have unintended consequences that can stifle innovation.
What are the consequences of inequality
Reduced social cohesion
Less resistance to exploitation policies
Income gap to big, becomes a disincentive to increase productivity
Can reduce entrepreneurship and innovation
Government need to fund redistribution- leads to an opportunity cost and result in government borrowing
What is wealth?
A stock/accumulation of assets as measurable at a date and time either marketable or non-marketable e.g pensions, houses, pension rights
What do the consequences of the poverty trap depend on?
Relative or absolute poverty
Extent of the poverty trap
Polices used to reduce poverty
How well the government manages welfare and resources
What is the policy objective of income distribution?
Even distribution to promote sustained economic growth, more efficient allocation of resources, reduces government welfare payments, promotes social cohesion and reduces market failure
What are the types of distribution?
Geographical and size distribution
