7. Income & Wealth Distribution (AQA A Level Economics): Flashcards
Exam code: 7136
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Define income.
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Cards in this collection (48)
Define income.
Income is the flow of money received from the factors of production, such as rent, wages, interest and profit.
True or False?
Wealth is a stock of assets, whereas income is a flow of money.
True.
Wealth is the stock of assets households own, while income is the flow of money received from the factors of production.
Define wealth.
Wealth is the stock of assets that households own, such as property, shares and pension schemes.
Wealth inequality refers to differences in the number of that households own.
Wealth inequality refers to differences in the number of assets that households own.
Is equity a positive or a normative concept?
Equity is a normative concept, concerned with fairness in the distribution of income.
Define equality.
Equality describes situations where economic outcomes are similar for different people or different social groups.
How does human capital affect income inequality?
Higher human capital and skill levels raise income, so a poor education system tends to produce greater income inequality.
True or False?
Income equality would mean everyone is paid the same regardless of their job.
True.
Income equality means everyone is paid the same irrespective of their job.
Define equity.
Equity refers to the idea of fairness in the distribution of income and is a normative concept.
A tax system asks higher earners to contribute a larger share, promoting a more equal distribution of income.
A progressive tax system asks higher earners to contribute a larger share, promoting a more equal distribution of income.
Name two causes of income and wealth inequality.
Two causes are differences in human capital and discrimination in the labour market.
How can inherited assets widen wealth inequality?
Assets generate income and rise in value, so passing them to the next generation through inheritance widens wealth disparities.
Define the Lorenz curve.
The Lorenz curve is a visual representation of the income inequality that exists between households in an economy.
True or False?
A Gini coefficient of 0 represents perfect inequality.
False.
A Gini coefficient of 0 represents absolute equality, while a value of 1 represents perfect inequality.
Define the Gini coefficient.
The Gini coefficient is a numerical measure of income inequality, calculated from the Lorenz curve as A divided by A plus B.
On a Lorenz curve diagram, what does the line of equality represent?
The line of equality represents perfect income distribution, where each share of the population receives an equal share of income.
The further a Lorenz curve lies from the line of equality, the more the distribution of income.
The further a Lorenz curve lies from the line of equality, the more unequal the distribution of income.
Define quintiles in the context of income data.
Quintiles divide a population into five equal groups of 20% when presenting income distribution data.
True or False?
A Gini coefficient closer to zero indicates a more equal distribution of income.
True.
The closer the Gini coefficient is to zero, the more equal the distribution of income in a country.
How is the Gini coefficient calculated from a Lorenz curve?
The Gini coefficient equals area A divided by area A plus B, where A lies between the line of equality and the Lorenz curve.
State one cost of an unequal distribution of income.
Inequality can act as a disincentive to work, reducing productivity and economic growth.
True or False?
Under capitalism, some degree of income inequality is inevitable.
True.
Under capitalism inequality is inevitable, as workers with higher skills receive higher wages than the low-skilled.
Data on a Lorenz curve is commonly presented in quintiles or , which divide the population into ten groups.
Data on a Lorenz curve is commonly presented in quintiles or deciles, which divide the population into ten groups.
Why might a more equal distribution of income improve social stability?
More equal societies tend to be more stable and tolerant, with lower crime and less social unrest.
Define absolute poverty.
Absolute poverty is a situation where individuals cannot afford to acquire the basic necessities for a healthy and safe existence.
True or False?
Relative poverty is the main form of poverty in developed countries.
True.
Relative poverty is the main form of poverty found in developed countries.
Define relative poverty.
Relative poverty is a situation where household income is a certain percentage below the median household income in the economy.
Households living with less than 50% of the household income are considered to be in relative poverty.
Households living with less than 50% of the median household income are considered to be in relative poverty.
How did the World Bank define absolute poverty in 2022?
In 2022 the World Bank defined absolute poverty as living on less than $1.90 a day, known as the international poverty line.
Define the poverty cycle.
The poverty cycle describes how low wages and poor human development trap households in persistent poverty.
True or False?
Absolute poverty is more prevalent in developing countries than in developed ones.
True.
Absolute poverty is more prevalent in developing countries than in developed countries.
What is the major cause of poverty in the poverty cycle?
Low wages are the major cause, arising from unemployment, a lack of skills or a primary-sector-based economy.
Give one effect of poverty on human capital.
Poverty limits access to education and healthcare, lowering productivity and shortening life expectancy.
True or False?
A population with a large number of dependents tends to experience lower levels of poverty.
False.
Populations with many dependents per working household tend to experience higher levels of poverty.
Low wages, poor education and low keep households trapped in the poverty cycle.
Low wages, poor education and low productivity keep households trapped in the poverty cycle.
How does absolute poverty differ from relative poverty?
Absolute poverty means lacking basic necessities, whereas relative poverty is measured against the median income of other households.
Define progressive taxation.
Progressive taxation is a tax system that applies higher rates of income tax to higher levels of income.
True or False?
A national minimum wage is set above the free market wage rate.
True.
A national minimum wage is set above the free market rate, and firms cannot legally pay below it.
Define a national minimum wage.
A national minimum wage is a legal minimum rate of pay, set above the free market rate, that firms cannot pay below.
How does investing in education help alleviate poverty?
Education is a supply-side policy that raises human capital and productivity, increasing output and income.
State benefits are usually given to the poorest and most people in society.
State benefits are usually given to the poorest and most vulnerable people in society.
Define state benefits.
State benefits are payments given to the poorest and most vulnerable, such as unemployment, disability and pension payments.
True or False?
Free market economists argue that government intervention reduces incentives.
True.
Free market economists argue that intervention creates inefficiencies and reduces incentives.
How might higher progressive taxes reduce employment?
Higher progressive taxes can act as a disincentive to work and raise hiring costs, so firms may demand less labour.
How can anti-poverty policies affect government finances?
Higher taxes can raise government revenue, but rising welfare and education spending may outpace it, requiring borrowing.
True or False?
Higher incomes created by anti-poverty policies can increase spending and economic growth.
True.
Higher levels of income may promote spending and increase economic growth.
Reducing the use of policies, such as tariffs, can promote economic growth.
Reducing the use of protectionist policies, such as tariffs, can promote economic growth.
Why might higher taxes used to fund anti-poverty policies lower economic growth?
Higher taxes raise production costs, which may cause firms to relocate to lower-tax countries, reducing output.
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