AQA Economics UNIT 3 - Poverty and the distribution of Income and Wealth

Basic presentation for study notes on poverty and the distribution of income and wealth - tailored to AQA spec. 

Please note that presentation may appear incomplete due to page references. These references always refer to diagrams you can find in copies of the AQA Economics A2/AS textbooks - I just couldn't be bothered to find the diagram for my own revision. 

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Key terms
· Absolute poverty
· When income is below a particular level
· Relative poverty
· When income is below a specified portion of average income
· Progressive taxation
· A tax system where the rich pay a higher proportion of income in tax than the
poor
· Transfer
· Income paid by the state to benefit recipients. It is financed from taxation…read more

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Fiscal drag
· A failure to raise personal tax thresholds in line with inflation that brings the
low-paid into the tax net
· The poverty trap
· The low paid are trapped in relative poverty by having to pay income tax and
NICs at the same time as losing welfare benefits
· Horizonal Equity
· Households in similar circumstances paying similar taxes and receiving similar
benefits
· Vertical Equity
· Redistributes income from the rich to the poor on the basis of need…read more

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Causes of poverty
· Old age
· The elderly are often reliant on state pensions ­ which rises in line with the
RPI rather than average earnings
· Unemployment
· Unemployment benefits also rise in line with the RPI and so people whose
income is wholly reliant on benefits are relatively worse off
· Low wages
· The low-waged
· Workers with jobs but have low income e.g. unskilled workers
· The un-waged
· The unemployed, pensioners, disabled…read more

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History of inequality
· Keynesian era (1950s-1970s)
· Progressive tax systems, economic growth, low unemployment all helped
reduce inequality in this period
· Free-market era (1980s-1990s)
· Inequality widened at this point due to tax cuts for the rich…read more

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Measuring inequality
· Lorenz curves
· Measures the extent to which the distribution of income/wealth is equal or
unequal. A diagonal line would represent equal distribution of income
· Gini coefficient
· The degree of this is measured by the gini coefficient. The lower the value of
the gini coefficient, the more equal the distribution of household income…read more

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