Unit 2 Aos 2 Flashcards
(15 cards)
Distinguish between equity and equality
Equity is the goal of ensuring that all Australians have sufficient income to purchase g&s and have a good standard of living, to avoid absolute poverty and ensure inequalities in income are avoided. It’s close to fairness.
Equality is closer to evenness, if two households earn the same income it’s equal.
Eg. Two people earns the same. Equal. Two ppl earn the same but one is less skilled. Wouldn’t achieve Equity.
Difference between absolute poverty and relative poverty
Absolute is when people live in situations where they have insufficient income to purchase basic g&s they need to survive. Relative is when a household has a low level of income compared to a generally agreed standard. When income is below Henderson poverty line a household can’t have a dignified standard of living.
What’s the lorenz curve and the gini coefficient
Lorenzo curve plots the percentage share of total income against each quintile. It highlights the shared total income earned by each quintile (1/5 of any group or population, equally seperated form lowest to highest earnings)
Gini coefficient is the figure between 1&0 that measures equality. Closer to one less equal
What are types of income
Private or market- usual form. Eg wages interest dividends
Gross- private income plus direct cash benefits. Eg. Pension family tax benefits
Disposable income- gross income less direct tax
Social wage- disposable plus social transfers. Eg. Health, education
Final - social less taxes
Equivalised household income- total household income divided by ppl in household
What’s a barter system
Old method of exchanging g&s for g&s
What is dollarisation
Occurs when residents of a country extensively use another currency instead of domestic
What is the difference between income and wealth
Wealth is defined by monetary value of assets which can be used to purchase g&s. (net wealth is a better concept because it is minus liabilities)
You need money to make money
Ability to save depends on income relative to amount spent
Wealth generally comes from income but can come from interest investment and inheritance etc
Ways to redistribute wealth
Tax- increase to take from wealthier people and redistribute
- decrease to encourage people to make more money and wealth and invest to stimulate growth
Welfare
Funding changes- eg taking from military and putting into education
What is the formula for the gini coefficient
Area a (between the line of absolute equality and the Lorenzo curve) divided by area a + area b (total area under line of absolute equality)
What effect does poverty have on living standards
Can reduce both material and non material living standards
- poor health and education
- less financial support for healthy diet medical professionals and essentials
- low skill levels meaning unemployment
- mental illness
- social unrest
- class system
- stress levels
- opportunity loss
What are some causes of income inequality and poverty in Aus
Unemployment, unequal ownership of capital, work longer hours, dangerous risks, risky investments, working in harsh conditions,
Luck
Inheritance
What are social and economic benefits of achieving equity
Less helplessness and despair in society
Less mental health problems for those whose living standards
Social unrest is avoided, people aren’t marginalised
Less of a class system
Less conspicuous consumption
Wealth equality
Equality in opportunity
Reduced cost to gov
Benefits Eco growth
Gained satisfaction for lower income earners
What are some social and economic costs of achieving equity
Fewer ppl making wealth which retracts the goal
Entrepreneurship goes down which could reduce nation capital
Quality of capital is lower
Lower levels of productivity especially in labour and capital
What are some gov or budget measures to achieve equity
Cash benefits eg. Unemployment benefits, disability support
Progressive tax system- high pay higher
Proportional tax- rate stays same
Non cash benefits like public education
What could cause cost and demand inflation
Costs rise - interest rates, tax, exchange rates change, TOT change, price of raw materials, labour costs
Demand - fashion trends, condfidence, employment, gov intervention, international comp
