3.3 Fair dustribution of income

What is the distribution of income?

The way income is shared out between individuals and households in an economy

What is income?

The reward received for providing factors of production

What is the distribution of wealth?

The way wealth is shared out between individuals and households

What is wealth?

Market value of all assets owned by a person, group or country at a specific point in time

What is the difference between income and wealth?

Wealth is a stock of assets owned at a point in time while income is a flow over time

What are the 5 main sources of income?

1. Wages

2. Interest

3. Rent

4. Benefits

5. Profit

What are wages?

Income earned from working

What is interest?

Income earned from saving or lending money

What is rent?

Income earned from owning land or property

What are Benifits?

Payments from the government to support people who have little or no income

What are some examples of benefits?

1. Universal credit

2. Jobseeker’s Allowance

3. State pension

What is profit?

The reward for entrepreneurship and taking business risks

What is gross income?

Income received before taxes and deductions are taken away

What is net income?

Income available after direct taxes and other deductions have been paid

What are the causes of differences in distribution of income?

1. Ownership of assets

2. Unemployment

3. Education and qualifications

4. Skills and experience

5. Gender and discrimination

6. Demand and supply of labour

How dues the ownership of assets cause a difference in the distribution of income?

Individuals who own assets such as property, shares or savings can earn additional income through rent, dividends and interest. This means they receive income even when not working

How dues unemployment cause a difference in the distribution of income?

Unemployed individuals usually rely on welfare benefits, which are often lower than earnings from employment. This leads to lower household incomes.

How does education and qualifications cause differences in distribution of income?

Higher levels of education and specialist qualifications increase a workers human capital, making them more productive and increasing their earning potential

How does skills and experience cause difference in distribution of income?

Workers with rare skills or many years of experience are often in higher demand and can command higher wages

How does gender and discrimination cause difference in distribution of income?

Differences in income can arise due to discrimination and unequal opportunities in the labour market, although the gender pay gap has narrowed over time

How dues the demand and supply of labour cause differences in distribution of income?

Occupations where labour is scarce but highly demanded (e.g., doctors) tend to have higher wages whereas jobs with a large supply of workers tend to have lower wages

What are 6 causes of differences in distribution of wealth?

1. Inheritance

2. Saving

3. Property ownership

4. Enterprise (entrepreneurship)

5. Investment

6. Income levels

How dues inheritance cause a difference in distribution of wealth?

Some individuals inherit property, businesses, savings or investments from family members which create significant wealth advantages and increase wealth inequality across generations

How does saving cause difference in distribution of wealth?

Individuals with higher incomes are generally able to save more money. Over time, savings can grow through interest and investment returns, increasing wealth.

How does property ownership cause difference in distribution of wealth?

Owning property can generate wealth through rising house prices, rental income, and the accumulation of equity through mortgage repayments (people who own homes benefit when property prices rise, increasing their net wealth without necessarily earning additional income)

How does enterprise (entrepreneurship) cause difference in the distribution of wealth?

Successful entrepreneurs can build substantial wealth through profits and ownership of businesses. However, business failure can also lead to losses

How does investment cause difference in the distribution of wealth?

Investing in shares, bonds, or other financial assets can increase wealth through capital gains and dividends. Individuals with more money to invest often accumulate wealth faster

How do income levels cause differences in the distribution of wealth?

Higher incomes make it easier to save and invest, leading to greater wealth accumulation over time. This is why income inequality often contributes to wealth inequality

What are 5 consequences of unequal distribution of income and wealth?

1. Poverty and deprivation

2. Inter generational inequality

3. Inequality of opportunity

4. Social tension and division

5. Lower productivity

How is poverty caused by unequal distribution of income and wealth? (Explanation + evaluation)

Explanation - people on low incomes may struggle to afford necessities such as food, heating, education and healthcare. This can reduce living standards and quality of life

Evaluation - some inequality can motivate individuals to work harder, gain qualifications and become more productive

How is inter generational inequality caused by unequal distribution of income and wealth? (Explanation + evaluation)

Explanation - wealth and opportunities can be passed down through generations, making it difficult for some families to improve their economic position

Evaluation - improved education and social mobility policies can help break this cycle over time

How is inequality of opportunity caused by unequal distribution of income and wealth? (Explanation + evaluation)

Explanation - children from poorer households have less access to high quality education, tutoring, technology and enrichment opportunities, making social mobility more difficult

Evaluation - scholarships, bursaries and government support can improve opportunities for disadvantaged groups

How is social tension and division caused by unequal distribution of income and wealth? (Explanation + evaluation)

Explanation - large gaps between rich and poor can create resentment, reduce social cohesion and increase political tensions

Evaluation - some economists may argue that a degree of inequality is inevitable in a market economy and can encourage innovation and entrepreneurship

How is lower productivity caused by unequal distribution of income and wealth? (Explanation + evaluation)

Explanation - workers suffering from poor health, inadequate nutrition, or weaker educational outcomes may be less productive, reducing economic growth

Evaluation - training programmes and investment in education can improve productivity levels