2.7 Income Distribution and Welfare

what is wealth?

a stock of assets that have financial values
e.g. property, stocks and savings

what is income?

a flow of money over a period of time

how are both distributed in the uk?

unevenly

which is the more unevenly distributed of the two?

wealth
as it is more naturally had by the upper classes as people are ablt ot survive without it, it is not a necessity

how can income be earned

by labour in the form of wages (which is the factor return) (earned income)

how else can icnome be earned?

interest payments, rents, profits
(investment income)

name 4 causes of income inequality between households

unequal holdings of wealth
differences in the composition of households
differences in skills
difference in hours worked

how does unequal holdings of wealth cause income inequality between households

as wealth generated income in the form of profit, interest, etc, differences in wealth cause differences in income

how does differences in households composition cause income inequality between households

some households may have 3 adults working while some may have no one in employment
this means that there is naturally income deviation between households

how does differences in skills cause income inequality between households

those with high skills and qualifications are likely ot be in high demand
hence they are likely to earn high incomes

example for skill differences in income

unskilled base level salary in the uk as of 2026 = £19,000
skilled base level salary in the uk as of 2026 = £35,000

how does differences in hours worked cause income inequality between households

most full time workers will earn more than part time workers and those who earn overtime earn more who work standard hours
part time work is often relatively low paid compared to full time too

what are the 2 types of wealth

marketable
non marketable

what is marketable wealth

wealth that can be transferred to another person, such as homes

what is non marketable wealth?

wealth that is specific to a person and cannot be transferred, like pension rights

how much of the population own 20% of the uk’s wealth

1%

is wealthy evenly distributed between age categories?

no

why?

older people have had more time to save

who is the group that currently has the lowest holding of wealth globally

bangladeshi people

four causes of wealth inequality

inequality of income
difference in entrepreneurial skills
marriage patterns of the wealthy
the patternof inheritance

how does inequality of income cause wealth inequality between households

having a high income makes it easier for people to save and gain higher interest rates on their savings

how does differences in entrepreneurial skills cause wealth inequality between households

some people are self made millionares as a result of building up a business

how does the pattern of inheritance cause wealth inequality between households

families usually pass wealth holdings down to the eldest son in the uk
this has kept wealth concentrated in few hands
in contrast, other countries where assets are sidtributed among the kids on death of parents, wealth becomes more evenly distributed ver time

how does marriage patterns of the wealthy cause wealth inequality between households

the wealthy tend to marry other wealthy people
further concentrates wealth in the hands of a few

draw the lorenz curve

what is the lorenz curve

a measure of income inequality

what is the gini coeffcient

can take any value from 0 to 100 per cent
or 0 to 1
higher values of it indicate greater inequality

what is the uk gini coeffcient before and after housing costs

33% before
37% after
as of 2026

what is the 2 types of poverty

relative
aboslute

what is absolute poverty

the number of people living below 60% of the current median income
when a household or individual lacks the minimum income or resources required to afford basic human necessities→such as food, clean water,

what is relative poverty

when a household has a lower income than average

main causes of poverty in the uk

unemployment
low level of skills / education
ineffective benefit system
high cost of living (UK CPI 2.8% as of 2026, this causes a higher cost of living, stimulating poverty)