Equality and equity

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Equality and equity

The distribution of resources in a market economy

-     Wage rates are determined by the demand and supply of labour in the economy.

-    In a pure free market economy, where the govt plays only a small role in providing services, such as defence, those with no wealth would die unless they could persuade other individuals to help them. Usually non-workers are supported by others in the family. In many societies, the family network provides the social security net. Charities too play a small role.

-    In the UK the government has made some provisions for the poor since the Medieval times. Since 1945 a welfare state has been created which goes some way towards altering the distribution of income to ensure greater equality. In other words government has decided that the market mechanism produces an allocation of resources which is sub optimal from an equality viewpoint and attempts to correct this situation.

Causes of inequality in income

 There are a number of reasons why the personal distribution of income is unequal in a market economy.

-Earned income some workers earn more than others.

-unemployment and retirement not all people work. Non-workers are likely to receive lower incomes than those in work. The increase in the number of pensioners in recent years in the UK for instance is…

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