Please enable JavaScript.
Coggle requires JavaScript to display documents.
Equity in the distribution of income (Poverty (Causes (Low income: poverty…
Equity in the distribution of income
Key terms
Equity
: The condition of being fair or just
Equality
: The state of being equal with respect to something - to income = each member of society receives the exact same income.
If income distribution is believed to be equitable if it is distributed equally. Then equity in income distribution is also income equality.
If income is believed to be equitable when people's income is proportionate to work effort, this would give rise to income inequality as not everyones work effort is equal.
Why
In the free market, income received is in accordance with the sale and ownership of FOP's. Ownership of these is highly unequal. Some households have more and others less = some have the possibility to sell them and others not thus, resulting in an unequal distribution of income. This can come under labour, special labour from education or talent v lack of skill or not enough jobs.
Measuring
The lorenz curve
Used to show the degree of income inequality in a country = visually
The straight diagonal curve in the center represents
perfect income equality
= each quintile receives 20%.
The green line is the Lorenz curve based on the data in the table of income shares of % of the population cumulative.
THE FURTHER AWAY THE LORENZ CURVE IS FROM THE LINE OF PERFECT EQUALITY THE LESS EQUAL THE DISTRIBUTION OF INCOME IN THE ECONOMY.
The Gini Co-efficient
A numerical representation of the Lorenz curve, derived from the Lorenz curve.
= A / A + B (of the Lorenz curve)
It varies from 0 to 1
If it = to 0, there is perfect income equality
If it = to 1, there is perfect income inequality
Income shares of % of the population
This data shows how income is distributed through quintiles (20% proportion) of the population. If income were distributed perfectly equally, each population in each quintile (5 to add up to 100%) would equal to 20%. Dut to inequality in countries, the poorest quintile will receive less than 20% whereas, the richest - the last quintile - will receive more than 20% of the income in the economy.
These can also be shown in deciles = 10% of the population or quartiles = 25% of the population.
Poverty
Absolute poverty
: A measure of number of people in an economy with an income level bellow the predefined "poverty line" = the min income necessary to satisfy basic needs.
Relative poverty
: A measure of the number of people in an economy with an income level below a predefined level changed over time. Defined as a % of society's median income; poverty is relative to other peoples incomes.
Inability of a consumer or family to satisfy basic physical needs = food, water, shelter etc.
Causes
Low income:
poverty is essentially due to the fall of incomes thus, the lower the income the poorer the individual
Lack of human capital:
Low levels of education and skills translate into low incomes as there is a positive relation between higher skills and income levels.
Poor levels of health also lead to lower income levels due to costs and lower productivity = lower skilled jobs = lower income.
Unemployment:
No income is received but unemployment benefits are. These are low and provided for limited times.
Geography:
Remote isolated regions = lower possibilities for employment or moving - due to poverty, age , lack of info or accessibility.
Consequences
Lack of access to healthcare/education:
A lower ability of access to these due to high costs or inaccessibility. lead to lower productivity, lower incomes and lower human capital formation = can result in the poverty trap
Higher mortality
: Inability to access healthcare services as well as poor nutrition will lead to large numbers of unnecessary deaths also considering pregancies.
Low living standards:
Associated with higher levels of economic stress, alcoholism, poor nutrition / levels of health = poorer job and income
Social problems:
high crime rates, drug use, family breakdowns, homelessness etc.
The redistribution of income
Transfer payments
Payments made by the government to individuals specifically for the purpose of distribution of income.
These are derived from tax revenue = unemployment benefits, pension schemes, clean water supplies, infrastructure with clean sanitation, disability pensions etc.
:check: Unemployment benefits act as automatic stabilisers reducing the size of the business cycle fluctuation by. decreasing unemployment and inflation.
:red_cross: Some may reduce the incentive to work (pension, child subsidies...)
:red_cross: Negative effects on gov budget + opportunity cost of spending
Price control
Min wages as price floors = support farmers and lower income workers. Price ceiling = food price levels in order to promote accessibility for all.
:red_cross: min wage leads to unemployment
:red_cross:Price controls lead to allocative inefficiency and welfare loss
Subsidies
Merit goods (goods considered desirable by society with positive externalities) are subsidised by the government in order to become more accessible E.g. education and healthcare prvodied free or nearly.
:check: Merit goods have positive consumption externalities = allocative efficiency improves + under-allocation is fixed
:red_cross:Negative effects on gov budget + opportunity cost of spending
Whatever the good, it is attempted provided in large numbers and at low prices for society. Makes certain goods available for low-income earners which would not have been