Microeconomics Topic 4 YR2 Flashcards
(24 cards)
What is income?
The flow of earnings received by individuals or households over a specified period, typically from wages, dividends, or state benefits.
What is wealth?
The stock of assets owned by individuals or households at a specific time, including tangible assets (e.g., property) and financial assets (e.g., savings, stocks).
How does income differ from wealth?
Income is a flow of money over time, often earned, while wealth is a stock of assets at a point in time, often accumulated through savings or inheritance.
What is the Lorenz Curve?
A graphical representation of income or wealth distribution, where the further the curve bows below the line of perfect equality, the greater the inequality.
What does the Gini coefficient measure?
It measures inequality numerically, derived from the Lorenz Curve, ranging from 0 (perfect equality) too 1 (maximum inequality).
What is the formula for the Gini Coefficient?
Gini Coefficient = A / (A+B), where A is the area between the Lorenz curve and the line of perfect equality, and B is the area under the Lorenz curve.
Name some of the other measures of inequality.
Decile or quintile ratios, and the Palma Ratio (ratio of the richest 10% of incomes to the poorest 40%).
List some causes of income inequality.
Difference in skills, education, and training ; unemployment; market power; globalisation; and government policies.
List some causes of wealth inequality.
Inheritance, asset appreciation, savings rates, and ownership of capital.
What are the positive consequences of Inequality?
Incentives to work and innovate, and efficient allocation of resources.
What are the negative consequences of Inequality?
Social and political instability, reduced economic growth, and market failures due to wealth concentration.
What is progressive taxation?
A system where higher-income individuals pay a larger proportion of their income in taxes, reducing disposable income disparities.
What is regressive taxation?
A system where lower-income individuals pay a larger proportion of their income, increasing inequality (e.g., VAT).
What is proportional taxation?
A flat tax rate applied regardless of income, with a neutral effect on inequality.
How can welfare benefits reduce inequality?
By providing financial assistance to low-income households, raising their disposable income and living standards.
What is the impact of minimum wage legislation on inequality?
It reduces in-work poverty by ensuring a basic standard of living but may increase unemployment if set too high.
How do public services reduce inequality?
By providing free or subsidised access to education, healthcare, and housing, improving equality of opportunity.
What are wealth taxes?
Taxes on inheritance, property, or luxury goods, aimed at redistributing wealth.
What is the equity vs efficiency debate?
Too much redistribution may reduce incentives to work or invest, while insufficient redistribution can perpetuate inefficiencies and underutilise talent.
How does the UK address inequality?
Through moderate levels of taxation and redistribution, though debates exist over inheritance taxes and welfare reforms.
What are key diagrams for this topic?
Lorenz Curve, impact of taxation on inequality, and minimum wage effects on labour markets.
What is the Palma Ratio?
The ratio of the richest 10% of incomes to the poorest 40%, used to measure inequality.
Give and example of a country with low inequality and why.
Sweden, due to progressive taxation and extensive welfare systems.
Give and example of a country with high inequality and why.
The USA, due to regressive taxation and limited welfare provision.
