Distribution of income and wealth, poverty and inequality

What is wealth vs income?

Wealth is stock of assets such as houses, cars etc, wealth inequality is unequal distribution of these assets

Income is money received on a regular basis such as a job, welfare payments, interest and dividends, income inequality is when there is an uneven distribution of income between a nation

What is the Lorenz curve?

Measures distribution of income and wealth in a country, line of perfect equality shows distribution of income when richest x% of population owns x% of the cumulative income.

Lorenz curve shows actual distribution of wealth and income

What is the gini coefficient?

Numerical value for inequality derived from Lorenz curve calculated by areas:

What are the 2 important values of the gini coefficient?

0 indicates perfect equality - Same income + wealth

1 indicates perfect inequality - All wealth and income is concentrated to one household

What is equality vs equity?

Equality is how wealth and income is distributed in society and if everyone had the same it would be equal

Equitable is fairness so what is the accepted distribution which could be subjective

What are causes of income and wealth inequality within and between countries?

Inequality in wages

Welfare payments and taxes

Unemployment

Changes to the UK tax system

Inequality between countries

Impact of economic change and development on inequality

What are some benefits and drawbacks of inequality?

Benefits:

Motivates worker to work hard

Can be income redistribution e.g inheritance tax

Drawbacks:

Monopolies can exploit and make more money

Inheritance concentrates wealth

Can demotivate those on lower incomes to participate in society. Can lead to negative externalities such as social unrest

Misallocation of resources leading to market failure