poverty and inequality

define income ?
flow of money a person or household receives in a particular time period
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define wealth
sum of all assets (stock)
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5 factors influencing the distribution between income and wealth ?
- taxation policy eg regressive / progressive
- difference in wage between low and high skilled labour
- level of discrimination against diff groups of workers
- unsalaried individuals depending on state benefits
- regional differences in earnings eg L
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what affect would 0% inheritance tax have on equality
would increase inequality
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3 cons of unequal income distribution?
❌higher levels of absolute n relative poverty
❌if poverty is higher - living standards decrease - may not be able to afford basic needs - increased crime levels
❌high incomes, depending on MPI (marginal propensity to import) - increases D for imports - w
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2 pros or unequal income distribution?
✅trickle down economists say that the poor may benefit from the success of the rich eg improved living standards or innovations / inventions
✅can motivate some to work harder - encourage entrepreneurship
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difference between absolute and relative poverty
absolute poverty can’t afford basic needs
relative poverty refers to standard of living compared to the economic standards of living in that area
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what is the wage elasticity for the supply of unskilled workers
more wage elastic so supply of labour is higher at any given wage as they’re unskilled and don’t require much training eg cleaners
whereas more skilled labour is more wage inelastic and supply of skilled labour is lower eg pilots bc of factors such as lo
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factors influencing the distribution of wealth
ability to benefit from capital gain eg higher share prices or higher house prices
private pension assets
inheritance, gifts n luck - difference between new wealth n old wealth (old wealth has inherited £)
wealth taxation bc income taxation
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equality vs equity
equality means everyone is treated the same - equal so a completely equal distribution means everyone has the same income
equity is everyone is treated fairly - more realistic
equity is unmeasurable it’s a value judgement
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in a highly competitive market economy how does the price mechanism aim to allocate resources
efficiently, but not necessarily fairly
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what does the Lorenz curve show?
the cumulative % of total national income or wealth is plotted against the cumulative % of population (ranked in increasing size of share)
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what does a gini co-efficient of 0 show
perfect equality
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what does a gini co-efficient of 1 show
complete inequality
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what does gini coefficient show
how much equality there is in an economy, we use it to compare our country to others
the UK is 24.4%
South Africa has the highest of 63%
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what does the extent to which the curve dips below a straight diagonal line indicate on the lorenz curve
the degree of inequality of distribution
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formula for gini coefficient
area A / (area A + area B)
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what is progressive taxation
a tax is progressive when, as income rises, a greater proportion of income is paid in taxation - closes the income n wealth gap
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define poverty
the state of being extremely poor and not having enough money or income to meet basic needs
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difference between absolute poverty and relative poverty
absolute. - doesn’t have basic needs , depends on income and access to services
relative - when income is below a specified proportion of average income eg below 60% of median income
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causes of poverty in the UK
- old age and poverty (old age causes relative bc many ppl rely on state pensions)
-unemployment - structural (not having skills to become employed )
- low wages - lack of incentive to work
- changes in NMW n welfare benefits
- educational deprivation
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best way to reduce absolute poverty
by fast and sustained economic growth and by creating jobs eg subsidies
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what’s the poverty trap
when there is no net gain from working
even if wages are higher then state benefits, tax can decentivise workers for example if income is £100 bud have to pay £100 tax there’s no net gain to working
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what are the benefits to poverty
✅encourages work - increase income n escape poverty - can reduce absolute poverty in LT - higher inequality means those at the top do well financially so will trickle down through higher levels of employment n more jobs for poorest in society - lower pove
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negatives to poverty
❌increase level of crime
❌waste of resource s - some ppl may have entrepreneurial talent n drive to start a company that has pos externalities but lack the resources
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what does the 45degree diagonal line on the Lorenz curve represent?
perfect equality
anything underneath is inequality the nearer to the line - the nearer to perfect equality
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what does a gini coefficient of 1 show?
complete inequality
0 = perfect equality
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What policies may a Government implement to alleviate poverty ?
- benefits (funded through taxes) - prevents people from living in absolute pov
- progressive taxation - reduces inequality
- minimum wage - guarntee workers r being paid a fair wage n can afford basic needs - stops monopsony employers from paying too l
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how can a state provision policy be used to alleviate poverty?
- means G&S are available to all despite income or wealth - by providing schooling, children are given a more equal start - more opportunities to earn in the future - more LT productivity in economy
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how might a benefits system be bad for an economy ?
can disincentivise work - bad for productivity and the economy
benefits could also lead to the poverty trap worsened - if ppl think their benefits will decrease if their income increases, they may intentionally not go up an income bracket bc they'd be wo
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what are unintended consequences of progressive taxation ?
by increasing the tax on higher income brackets, it discourages workers from earning money - gain from working may not be as great as the loss of benefits - can reinforce the poverty trap
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problems with national minimum wage
underestimates the differences in the cost of living within a country
for example the cost of a beer is more expensive in the south eg London then it is the North
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Card 2


define wealth


sum of all assets (stock)

Card 3


5 factors influencing the distribution between income and wealth ?


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Card 4


what affect would 0% inheritance tax have on equality


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Card 5


3 cons of unequal income distribution?


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