Micro 7.1

?
What is income?
A flow of money to a factor of production, usually labour.
1 of 33
What does income include?
Wages and welfare benefits.
2 of 33
What is wealth?
A stock of valuable assets.
3 of 33
What does wealth include?
Property and shares.
4 of 33
What is the distribution of income?
How income is shared out between the population.
5 of 33
What are 3 factors leading to an unequitable distribution of income?
Difference in skills, qualifications and work experience, differences in wealth, impact of the state.
6 of 33
How can differences in skills, qualifications and work experience affect the distribution of income?
Individuals with skills, qualifications and work experience that are in high demand will tend to earn more than those lacking in these.
7 of 33
How can differences in wealth affect the distribution of income?
Wealthier individuals and households tend to earn more income from their holdings of assets in the form of dividends and interests.
8 of 33
How can the impact of the state affect the distribution of income?
A free market economic system would provide fewer welfare benefits than a command economic system.
9 of 33
What is the distribution of wealth?
How wealth is shared out among the population.
10 of 33
What are 4 factors leading to an unequitable distribution of wealth?
Differences in income, inheritance, marriage, property.
11 of 33
How do differences in income affect the distribution of wealth?
Higher earners are more able to save money and earn interest to increase their wealth.
12 of 33
How does inheritance affect the distribution of wealth?
Property and other valuable assets can be passed down from one generation of wealthy families to the next.
13 of 33
How does marriage affect the distribution of wealth?
Wealthy people tend to marry other wealthy people, leading to a concentration of wealth among a relatively small number of families.
14 of 33
How does property affect the distribution of wealth?
Wealth can generate wealth for those who own valuable assets such as property if the income earned from rental is saved or used to purchase further valuable assets.
15 of 33
What does equality mean?
Income and wealth are shared out equally between all members of society.
16 of 33
What is equity?
Fairness.
17 of 33
Why is it seen as fair by some societies that income and wealth are shared out unequally?
Because some work longer or harder than others, or have sacrificed earnings in order to complete further or higher education.
18 of 33
What are 2 measures of inequality?
The Lorenz Curve, the Gini Coefficient.
19 of 33
What does the Lorenz Curve illustrate?
The extent of income and wealth inequality.
20 of 33
How is inequality shown on the Lorenz Curve?
The further the Lorenz Curve is from the 45 degree line of perfect equality, the greater the inequality.
21 of 33
What is the Gini Coefficient?
A statistical measure of the degree of inequality.
22 of 33
How is the Gini Coefficient calculated?
The ratio of the area between the 45 degree line and the Lorenz Curve / the total area below the 45 degree line.
23 of 33
How is the Gini Coefficient analysed?
The higher the value, the more inequality exists.
24 of 33
What figure does the Gini Coefficient have with perfect equality?
0.
25 of 33
What figure does the Gini Coefficient have with perfect inequality?
1.
26 of 33
What are 2 drawbacks of income and wealth inequality?
Social tensions, the creation of an underclass.
27 of 33
How are social tensions caused?
Poorer members of society may come to resent richer members of society, which may lead to friction, crime and rioting.
28 of 33
How is an underclass created?
With a relatively low standard of living and little chance of bettering their position, there may be a significant segment of society that comes to be reliant on welfare benefits.
29 of 33
What are 2 benefits of income and wealth inequality?
Incentive effects, trickle-down effects.
30 of 33
How does income and wealth inequality cause incentives?
High earners suggest high salaries can be made through hard work.
31 of 33
What is the benefit of incentive effects?
They help to generate economic growth, making average incomes higher.
32 of 33
How can the benefits of high earners trickle down to all sectors of society?
High earners tend to be business owners who create employment, and they pay high taxes which can be invested to raise the living standards and fund merit goods which are free for all members to consume.
33 of 33

Other cards in this set

Card 2

Front

What does income include?

Back

Wages and welfare benefits.

Card 3

Front

What is wealth?

Back

Preview of the front of card 3

Card 4

Front

What does wealth include?

Back

Preview of the front of card 4

Card 5

Front

What is the distribution of income?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

Revenue
Teacher recommended
Theme 1
See all Economics resources »See all The Distribution of Income and Wealth resources »