5.2.1Inequality and Poverty

What is inequality?

The gap between the highest income earners and the lowest income earners.

Is inequality a problem?

Yes, because it can lead to market failures, unfair distribution of power and resources, inherited advantages, social friction and higher unemployment rates.

How can social problems relate to inequality?

Inequality may lead to higher crime rates and social friction.

How can monopolies contribute to inequality?

Monopolies can set higher prices for consumers, this leads to an unfair distribution of power and resources.

How is inequality measured?

The lorenz curve

Benefits of inequality?

Incentive effect, entrepreneurs require rewards, trickle down effect, and fairness.

What is incentive effect?

The promise of a higher wage can encourage extra effort, causing people to work harder.

What is entrepreneurs require rewards?

Inequality is required for people to take risks to start up a bussiness, without the reward, no one would take the risk. 

What is the trickle down effect?

If some people can extra income they can give it to other people (e.g. if someone rich starts a business he would share his wealth with employees).

What are some reasons for houses to increase in price?

Not enough land space, population increasing, and governments not allowing land to be used.

What is poverty?

When an individual does not have basic resources to meet living standards.

What is absolute poverty?

When someone cannot meet the requirements for survival.

What is relative poverty?

Where an individual is considered poor to society.

policies that alleviate poverty?

Improving education, providing job training, and improving and decreasing the price of public goods.