Equity vs Equality

EQUITY IN THE DISTRIBUTION OF INCOME UNIT 

EQUITY VS EQUALITY 


IB Core Concept 

Standard Level and High Level Concept

Equity in the Distribution of Income 

• Explain the difference between equity in the distribution of income and equality  in the distribution of income.  

• Explain that due to unequal ownership of factors of production, the market  system may not result in an equitable distribution of income.  

Source: IB Economics Subject Guide



Definitions: Equity and Equality  

It is important that you understand the difference between equity and equality from  the outset. 


Definition: Equity is the condition of being fair or just. 

Definition: Equality is the state of the respective something. 


  • Equality in terms to income means that each member of the society receives exactly the  same income. 

  • This may or may not be, depending on how equity is interpreted. 

  • If it is believed that income distribution is equitable, or fair, if it is distributed equally,  then equity in income distribution means income equality. 

o However, if it is believed that it is equitable, or fair, for people’s incomes to be in  proportion to their work effort, this would give rise to income inequality, since  

not everyone’s work effort is the same. 

Arguments Surrounding Poverty and Unequal Distribution of Income: 

  • Even if it is perceived that an equal distribution of income is unfair, economic reasoning  will show that higher incomes act as an incentive for people to work harder. 

  •  If people do not believe that their hard work in school or at work will allow them to raise  their human capital and provide them with the opportunity to earn higher incomes,  then this would have huge implications for the supply side of an economy, resulting in a  lower overall level of economic activity. 

  • Purely economic analysis will not lead to an answer as to exactly how much inequality is  acceptable or appropriate. 

  • This is very much a normative issue. 

  • What can be agreed upon is the fact that market economies do result in inequality of  income. 

We will look at the ways in which government use their policy on taxation, and how  government spending will affect the distribution of income in an economy.