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Economics A* Notes
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Lecture notes of 7 pages for the course Unit 1 ECON1 - Economics: Markets and Market Failure at AQA (Economics A* Notes)
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The Distribution of Income and Wealth, Poverty and Inequality7.1 The Distribution of Income and Wealth
Distinction between Wealth and Income Inequality:
● Wealth is defined as a stock of assets such as house, land, cars and savings. Wealth
inequality is the unequal distribution of these assets
● Income is the money received on a regular basis. For example, it could be from a job,
welfare payments, interest or dividends. When income is unevenly distributed across
a nation, income inequality is said to exist.
Measurements of Income Inequality:
● The Lorenz curve and the Gini coefficient
Diagram
● The Lorenz curve measures the distribution of income and wealth in a country. The
linked of perfect equality shows the distribution of income when the richest x% of the
population owns x% of the cumulative income.
, ● The Lorenz curve shows the actual distribution of income and wealth, The one in the
diagram shows a significant level of inequality. The richest 20% owns a higher
proportion of income than the poorest.
● The Gini coefficient gives a numerical value for inequality and is derived from the
Lorenz curve. It is calculated by the areas:
Formula
● A value of 0 indicates perfect equality sp everyone has the same income and wealth.
A value of 1 indicated perfect inequality ie all the wealth in the country is
concentrated in the hands of one individual or household
The Difference between Equality and Equity in Relation to the Distribution of income and
wealth:
● Equality refers to the qal distribution of wealth and income in society so that everyone
has the same income
● Equity refers to fairness or what is considered to be an acceptable distribution of
income and wealth in society. This can be subjective
Causes of Income and Wealth Inequality within and between Countries
● Inequality in wages:
Recently more part time and temporary jobs have been available rather than full time
jobs. This leaves people underemployed and it limits how much they can earn. It
became a problem during the Great Recession.
On average those with a degree earn more over their lifetime than those who gain
just A-levels. The wage gap between skilled and unskilled workers has increased in
the UK recently. Jobs in the low skilled service industries especially in the public
sector tend to pay less than jobs in the private sector.
Even with equal pay laws, women still earn less than men on average. This could be
due to the career breaks and fewer hours worked on average than men or because
women are crowded into low paid or part time jobs which may only require low skill
levels. Women could also be discriminated against when it comes to promotion which
effectively locks out higher paying jobs, Although a gap still exists it is narrowing.
Workers might be discriminated against due to age, disabilities, gender and race.
● Welfare Payments and Taxes:
State pensions and welfare payments tend to increase less than wages even though
they are index linked to inflation. THis means that those on benefits see a smaller
real increase in their income compared to those in jobs. This increases inequality.
Moreover recently welfare payments have been cut. Although this might encourage
some people to find jobs, many people might be unable to work so it lowers their
income more. In the UK, some taxes are regressive which means that those on lower
incomes bear a larger burden of the tax, This can increase inequality.
● Unemployment:
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